United Retail creditors file suit to challenge credit bid claim amount

By Caroline Salls

Pittsburgh, March 13 - United Retail Group, Inc.'s official committee of unsecured creditors filed a lawsuit Monday to challenge defendant Ornatus URG Acquisition, LLC's right to credit bid a $9.52 million secured claim transferred to it from United Retail parent Redcats USA, Inc., according to a filing with the U.S. Bankruptcy Court for the Southern District of New York.

The committee said it is seeking "declaratory and injunctive relief for purposes of defendant's anticipated credit bid" in connection with the amount and priority of Ornatus' secured claim.

According to the complaint, Ornatus has reserved the right to credit bid all or part of a $9.52 million secured claim transferred from Redcats in connection with its stalking horse bid for substantially all of United Retail's assets.

The committee said the claim amount for purposes of the credit bid should be $0 after making adjustments in connection with a tax sharing arrangement. The creditor group said the Redcats secured claim is subject to offset under that arrangement.

"Now, standing in the shoes of Redcats, the defendant asserts the Redcats secured claim in a vastly overstated amount," the committee said in the lawsuit.

"Indeed, to the extent the claim is truly debt rather than equity, a substantial portion of the Redcats secured claim is comprised of unsecured obligations of the debtors."

The creditor group said it is also investigating all potential claims, offsets and causes of action that may be asserted as a result of the debtors' pre-bankruptcy arrangements with Redcats and reserves the right to object to the allowance of all or a portion of the claims arising from those arrangements in accordance with the conditions of its final financing order.

The committee is asking the court to hear the issues covered in the lawsuit by March 15 so that all potentially interested bidders will have notice of the correct value of the stalking horse bid before the March 20 bid deadline.

United Retail is a Rochelle Park, N.J., specialty retailer of large-size women's fashion apparel, footwear and accessories. The company filed for bankruptcy on Feb. 1. The Chapter 11 case number is 12-10405.

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