Signature Styles Chapter 11 Case Hits a Snag

Jul 05, 2011 7:14 PM  By

Signature Styles has run into a snag in its Chapter 11 bankruptcy case. The trustee overseeing the case told a judge that Signature Styles, a division of private equity firm Patriarch Partners that was formed to purchase Spiegel Brands two years ago, shouldn’t receive approval of its proposed bidding procedures.

(PHOTO GALLERY: Who filed for Chapter 11 bankruptcy protection in the first half of 2011)

According to those procedures, Artemiss LLC, a newly-formed division of private equity firm Patriarch Partners, would become the stalking horse bidder in exchange for assumption of $30 million in debt and as much as $10 million in other liabilities.

According to court documents, the official committee of unsecured creditors appointed in the case is “gravely concerned that the sale process currently proposed by the debtors is woefully deficient, crafted solely to benefit Patriarch, provides no benefit to the debtors’ estates and is nothing more than half-hearted window dressing intended to cloak Patriarch’s efforts to cleanse the debtors’ balance sheet of unsecured indebtedness with the appearance of fairness and equity.”

What’s more, the committee asked the court to take an active role in the sale process and solicit alternative sales proposals. So what does this all mean?

Chris Kampe, managing director for investment firm Tully & Holland, says when the court chooses a stalking horse bidder, which is what Patriarch is trying to be, it then moves to a 363 sale auction – whereby multiple parties invited to the auction could outbid Artemiss, or whoever is designated the stalking horse bidder, by an agreed upon amount and buy the company.

If no one outbids Artemiss, then Artemiss wins the auction at the agreed upon price, Kampe says. If another party outbids Artemiss, then Artemiss would receive a breakup fee of $300,000 – which the trustee called too high an amount.

“This will continue to play out,” Kampe says, “but the trustee appears to be either buying time for other parties to come to the table, or is trying to get Patriarch to sweeten the bid.”

Signature Styles filed for Chapter 11 bankruptcy protection last month in the U.S. Bankruptcy Court for the District of Delaware.

The Spiegel, Newport News and Shape Fx apparel titles were included in the filing, along with affiliate Signature Styles Gift Cards. Signature Styles is seeking court approval for the sale of its assets by early August.