Goody's Files for Bankruptcy

NEW YORK (Reuters) – Goody's Family Clothing Inc, a regional apparel chain with more than 350 stores, on Monday became the latest retailer to file for Chapter 11 bankruptcy, hurt by high gasoline and food prices that have forced consumers to cut back on non-essential purchases.

Goody's has struggled with tight credit markets, a strain on merchandise flow and a sizable number of underperforming stores, the Knoxville, Tennessee-based company said in a filing with the U.S. Bankruptcy Court in Delaware.

A slowdown in consumer spending has already sent a slew of retailers. including Linens 'n Things and Sharper Image Inc, streaming into bankruptcy court. The pace shows no sign of slowing.

“I would expect more filings in the near-term and the mid-term,” said Richard Mikels, chairman of the bankruptcy practice at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. “It's going to be at all levels of the retail industry because of the consumer malaise in this country, including surprising job losses and the high cost of energy.”

Further, Mikels said: “A lot of retail companies are highly leveraged, and highly leveraged companies are going to have trouble because of the credit crunch.”

Goody's employs about 9,868 full-time and part-time workers, according to a court filing. It plans to shut 69 stores and close its Russellville, Arkansas, distribution center.

Goody's said it is seeking $210 million of debtor-in-possession financing, which would allow it to continue to operate while under the bankruptcy process. The proposed financing would consist of a $175 million revolving credit facility from General Electric Co's (GE.N: Quote, Profile, Research) General Electric Capital Corp, a $15 million loan agreement with GB Merchant Partners and a $20 million junior term loan agreement with PGDYS Lending LLC.

Goody's is owned by PGDYS LLC, of which private equity firm Prentice Capital Management is the managing member. GMM Capital LLC owns 15 percent of the equity interest, while PGDYS owns the balance.

The company said it expects the arrangements will give it sufficient liquidity to sustain its operations during the Chapter 11 case.

“After careful analysis, we made the decision to restructure the business through a Chapter 11 filing in order to streamline operations, refocus on our core business, and strengthen our balance sheet so that Goody's is better positioned for the future,” said Chief Executive Officer Paul White, in a statement.

The retailer had $313 million in assets and $443 million in liabilities as of May 3, according to a filing. For the fiscal year ended Feb. 3, the company generated revenue of about $1.1 billion.

Unsecured creditors include jeans makers Levi Strauss & Co and Lee Co, according to the bankruptcy filing. Lee is a VF Corp (VFC.N: Quote, Profile, Research) brand.

As of May 31 Goody's operated 355 stores in 20 states, mainly in the Southeast and Midwest. It has located its stores in smaller towns, aiming its apparel at budget-minded shoppers who seek popular brand names and more formal clothing for church and weekend activities.

It expects to file a reorganization plan within one month, pending support from unsecured creditors. (Reporting by Chelsea Emery; additional reporting by John Stempel in Bangalore; editing by John Wallace)