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Published on 12/3/2012 in the Prospect News Distressed Debt Daily.

Mervyn's Holdings seeks OK of California workers comp fund settlement

By Jim Witters

Wilmington, Del., Dec. 3 - Mervyn's, LLC is seeking approval of a $6.24 million agreement with the California Self-Insurers' Security Fund to settle a $36.93 million claim, according to documents filed Nov. 30 with the U.S. Bankruptcy Court for the District of Delaware.

Nature of claim

Employers in California are required to pay workers compensation claims and are required to secure those liabilities by providing a security deposit or by participating in an alternative security system.

Before the petition date, Mervyn's funded its workers compensation liabilities through a self-insured plan provided by ACE American Insurance Co. and by depositing $720,000 with the California Department of Industrial Relations.

In June 2008, the CDIR required Mervyn's to increase its security deposit by $28.39 million.

In October 2008, Mervyn's received court approval to liquidate its assets and close its stores. The company also stopped paying its workers compensation claims at that time.

The California Self-Insurers' Security Fund filed 11 proofs of claim in the bankruptcy case.

Of the total $36.93 million in claims, $27.89 million is secured debt, the fund contended.

Settlement terms

Under the proposed settlement:

• As of the plan effective date, the fund will receive an allowed general unsecured claim of $31.18 million;

• On or before Dec. 31, Mervyn's will pay the fund $6.24 million by wire transfer in satisfaction of the allowed fund claim;

• If the general unsecured creditors receive a percentage distribution of more than 20% under the plan of liquidation, the plan administrator will pay the fund the difference between the settlement payment and the amount the fund is entitled to as a general unsecured creditor; and

• If the general unsecured creditors receive a percentage distribution that is 20% or less, the fund retains its full settlement payment.

A hearing to consider the proposed settlement is scheduled for Dec. 21.

Mervyn's, a San Francisco-based department store, filed for bankruptcy on July 29 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 08-11586.


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