Due to the nation’s weak economy that is spending less on gourmet foods, Harry & David Holdings, Inc. filed for bankruptcy protection on March 28, as reported by Reuters, the Los Angeles Times, the Baltimore Sun, among others.
The mail-order company, made famous by its popular fruit-laden baskets, has been forced to file due to a reduction on gift spending by both consumers and businesses.
The Chapter 11 filing, a “pre-arranged” filing, will give the bondholders control of Harry & David.
It has been more than 100 years since Samuel Rosenberg, a hotel owner, bought 240 pear orchards in Oregon’s Rogue River Valley. By the middle of the 1930s his sons, Harry and David, came up with the idea of a selling the pears via “Fruit-of-the-Month” clubs.
Many of the quality-driven products sold by Harry & David are still grown on about 3,400 acres of farm land in Oregon
The bankruptcy agreement will convert $198 million of senior debt into equity, and, the reorganization process will allow normal operations to continue.
The company, based in Medford, Oregon, after seeing their holiday sales plummet, had to give consumers deeper discounts.
Kay Hong, the chief restructuring officer and interim chief executive for the company said, “Consumers have become extremely price conscious following the beginning of the 2008 recession.”
Hong filed in the U.S. bankruptcy court in Delaware.
Along with less-than stellar holiday revenues, Harry & David also had to compete with larger retailers, like Wal-Mart Stores Inc. and Target Corp., that offer alternative products at lesser prices.
Harry & David is owned by Wasserstein & Co., a private equity firm and Highland Capital Management, a hedge fund.
Highlands Capital Management purchased Harry & David in 2004 for $252.9 million.
More than half of Harry & David’s annual sales are made in the quarter that ends on December 25 – and in that quarter alone net sales fell 2 percent to $262.1 million. The operating profit also fell – 56 percent to $26.2 million.
Harry & David recently closed 52 stores while maintaining 70 stores that are mostly in malls.
Besides the well-known fresh fruit baskets, Harry & David also sells Wolferman’s English muffins and Moose Munch popcorn treats.
UBS AG and Ally Financial Inc. will provide $100 million of financing in the restructuring plan to keep the company operating. Bondholders will provide an additional $55 million.
When Harry & David is ready to exit Chapter 11, UBS and Ally will provide another $100 million for financing.
Creditors – those holding 81 percent of the senior notes – have agreed to support the reorganization plan and backstop a $55 million rights offering to finance the emergence as well.
Hong said, “We believe that entering into this 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, while continuing to provide customers with the highest quality products and service.”
If you are challenged by mounting debts due to the weak economy, contact a bankruptcy lawyer to discuss a personal and/or business bankruptcy.