Aug. 12 (Bloomberg) -- Escada AG directors will today discuss filing for insolvency after bondholders rejected a rescue plan from the luxury clothing company.

Escada will seek court protection after 46 percent of bondholders backed an offer to exchange old debt for new notes, short of the 80 percent threshold that would have enabled it to obtain a bank loan, the Munich-based clothier said in a statement late yesterday. The company will make the insolvency filing at a court in Munich tomorrow, Chairman Reinhard Poellath told Handelsblatt.

“The 80 percent acceptance target was set too high and a lot of speculative money was invested in the bonds,” said Christoph Schlienkamp, an analyst at Bankhaus Lampe KG in Dusseldorf. “We just don’t know exactly how much money is left in the company, only the insolvency process will show.”

Escada’s collapse follows years of management upheavals, design flops and a contracting market that hastened the decline of the brand whose $10,000 robes are worn by stars including Demi Moore. More than 2,200 employees are affected by the insolvency which follows the failure of fashion companies including IT Holding SpA, owner of the Gianfranco Ferre label, and Christian Lacroix SNC.

Escada spokesman Frank Elsner wasn’t immediately available for comment when contacted by Bloomberg News.

Shares Plunge

The company’s stock lost more than half its value and its bonds plunged. Escada shares dropped as much as 81 cents, or 52 percent, to 74 cents. The shares traded at 82 cents as of 10:48 a.m. in Frankfurt, giving the company a value of 25.7 million euros ($36.3 million).

The company’s 200 million euros of 7.5 percent notes due 2012 fell 2.13 cents to 24.63 cents on the euro, pushing the yield to more than 80 percent, according to Bloomberg fair value prices. The bonds were at 34 cents as recently as April 23.

Chief Executive Officer Bruno Saelzer, a former CEO of Hugo Boss AG, was brought in by Escada investors including German billionaire brothers Wolfgang and Michael Herz. The siblings had agreed to back a stock sale on condition bondholders agreed a debt-for-equity swap. Saelzer had wanted to avoid insolvency out of concern for the brand’s image.

Escada offered bondholders 400 euros and 10 shares per 1,000 euros of debt. A loan of 13 million euros from a unit of UniCredit SpA and a capital increase of at least 29 million euros already backed by the company’s main shareholders were conditional on a successful exchange, Escada said.

To contact the reporter on this story: Claudia Rach in Berlin at crach1@bloomberg.net

Last Updated: August 12, 2009 05:05 EDT