Harry & David Holdings Inc., the Oregon-based gift-box retailer that began selling fruit by mail in the 1930s, filed for bankruptcy protection after reaching an agreement with lenders to trim debt that includes almost $200 million in bonds.
The company, owned by investment funds controlled by Wasserstein & Co., listed assets and debt of as much as $500 million each in a Chapter 11 petition filed today in U.S. Bankruptcy Court in Wilmington, Delaware. Companies use Chapter 11 of the bankruptcy code to reorganize, cut debt and continue operating.
Harry & David, based in Medford, Oregon, failed to make interest payments due March 1 on about $58.2 million in senior floating-rate notes and more than $140 million in senior fixed-rate notes, according to Standard & Poor’s. Under its reorganization plan, senior notes and some general unsecured claims will be converted to new equity.
The agreement “provides the best opportunity for Harry & David to restructure its balance sheet on an expedited basis, strengthen its operations and create long-term value,” Kay Hong, chief restructuring officer and interim chief executive officer, said today in a statement.
Harry and David Rosenberg took over the family pear orchards after their hotelier father’s death in 1914. During the Depression, they began pitching their Comice pears to business leaders as gifts, according to the company’s website. The company introduced its Fruit-of-the-Month Club in 1938.
Harry & David provides gourmet food products and gifts marketed under the Wolferman’s and Cushman’s brands as well as its own. The company in September reported a net loss of $39.2 million for the fiscal year that ended in June as sales fell 13 percent to $426.8 million.
The company said it ran into trouble because of lower-cost competition on the Internet and lower sales during the holiday season -- source of 60 percent of its annual revenue.
Among the largest unsecured creditors listed in court papers were Wells Fargo Bank, trustee for holders of almost $200 million in notes, and the Harry & David Pension Plan, valued at $27.4 million. The company said it will terminate the plan.
Harry & David said it will ask a judge for permission to borrow as much as $155 million to continue operating while it reorganizes. The company lost access to its revolving credit, Moody’s Investors Service said in January.
The company said that catalog orders and sales at 70 stores nationwide will remain normal and it will continue to honor Fruit-of-the-Month and gift cards.
Rothschild Inc. is Harry & David’s investment banker, according to the company’s statement. Jones Day is its legal adviser, and Alvarez & Marsal LLC is the financial adviser.
The company’s $140.2 million of 9 percent notes due March 2013 last traded on March 25 at 27.5 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bond has declined from 72 cents in January.
The case is In re Harry & David Holdings, Inc., 11-10884, U.S. Bankruptcy Court, District of Delaware (Wilmington).