Rhodes files for Chapter 11, gets commitment for $88 million DIP

By Jeff Pines

Washington, Nov. 4 - Rhodes Inc., an Atlanta-based furniture retailer, filed for Chapter 11 with the U.S. Bankruptcy Court for the Northern District of Georgia Thursday.

According to paperwork filed with the court, the company loaded up on inventory and then tried to sell it off. While it was selling off inventory, it was not reordering, so vendors became concerned about the company. Then in July, Breuners Home Furnishings Corp. filed for bankruptcy, which caused the suppliers to reassess their relationship with Rhodes, the company said.

A UBS Securities report, which Rhodes said contained "a number of false statements," led vendors to further reduce the company's access to trade credit. A string of hurricanes that hit the southeast slashed same-store sales and Rhodes no longer had the cash to buy new merchandise or meet its operating expenses, it said.

Rhodes has obtained a commitment for an $88 million debtor-in-possession financing facility through Wells Fargo Retail Finance. The total includes a $13 million tranche B loan. The interest rate would be Libor plus 250 basis points for revolving loans and Libor plus 275 basis points for term loans. All tranche B loans would carry an interest rate of Prime rate plus 650 basis points.

The closing fee, if approved, will be $340,000 for revolving and term loans and $195,000 for tranche B loans with an unused line fee of 25 basis points.

Rhodes has identified 26 store locations and five related support operations that will be closed as a part of its restructuring. The company expects to reorganize its business around the remaining 63 stores.

The company has not set a target date for emergence from Chapter 11, but Steven Fishman, Rhodes' chief executive, president and chief restructuring officer, stressed that the company's strategy is to move quickly.

Rhodes' largest unsecured creditors are Jackson Manufacturing with a $1.8 million merchandising claim, Irwin Lowenstein Non-Qualified Pension with a $1.6 million claim and Bauhaus USA Inc. with a $1.5 million merchandising claim.

According to the company's petition, Rhodes estimates it has assets and liabilities of more than $100 million each.

The company hired FTI Consulting Inc. as its financial and restructuring adviser.

Rhodes' Chapter 11 case number is 04-78434.

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