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RAPAPORT... The Waldman Diamond Company in New York filed for Chapter 11 bankruptcy protection in what the company called a direct response to legal action by Bank Leumi that demanded immediate repayment of a long-standing rolling credit facility. Waldman Diamond sought court protection to preserve normal operations and restructure financial obligations. The firm listed the top 20 of its largest unsecured claims as part of the proceedings, totaling about $630,000. The company explained to the court that it has realized annual revenue of between $25 million and $30 million during the past several years and is currently profitable. But a series of business issues with Waldman Diamonds Complete LLC (Complete), allegedly exacerbated by Bank Leumi's unwillingness to work with the firm, led to the demise of that division. While Waldman Diamond paid general and administrative expenses for Complete, that division continued to report losses, but didn't remain current on outstanding debt and these issues, among others, led management to close operations in November 2013.
Nonetheless, Waldman Diamond is jointly liable on the existing credit line with Bank Leumi, which was reduced to $11 million in 2013 from $13 million in 2011, according to the filing. The reduction also negatively impacted the firm's borrowing base, pressured inventory levels and operations and devastated the firm's cash flow, according to the court filing. "Bank Leumi made a number of verbal promises to the debtors in order to entice them to meet their ever-increasing and burdensome demands, including the release of certain cross guarantees between Waldman Diamond and Complete. Such a release would have allowed the debtors to obtain new investors, which could have assisted with their respective cash flow problems and grown their operations. Unfortunately, Bank Leumi reneged on its promises and new funding was no longer an option," according to attorneys for Waldman Diamond. Bank Leumi served an "order to show cause" on Waldman Diamond on May 30 and imposed a temporary restraining order. The debtor then filed Chapter 11 to avoid the bank shutting down its operations and conducting a fire sale, which would have benefited no other entity except the bank, according to the filing. "In order to protect Waldman and its continued profitable operations as well as to protect Complete, the maximization of its value and ensure an orderly wind down and liquidation, the debtors in good faith filed these Chapter 11 cases. The debtors intend to utilize the protections of Chapter 11 to protect their operations, restructure its obligations and undertake an orderly wind down of Complete. By doing so, the debtors will be able to propose a Chapter 11 plan(s) that is in the best interest of all of its creditors and affords them the greatest recovery possible," the company told the court.
The Waldman Diamond Company in New York is part of the Waldman Diamond Group, headquartered in Israel, which also includes separate companies in the Far East, Canada and Israel. The company has been conducting banking business with Bank Leumi for 35 years. Waldman Diamond Company's group CEO, Alexander Waldman, said, “We are defending ourselves against an aggressive and underhanded attack by Bank Leumi. Having announced its departure from the diamond industry, they have shown no interest in the welfare and stability of its customers. We have taken robust defensive action in order to ensure the long-term continuity of our U.S. business, to protect our staff and to enable us to maintain the reliable service that we provide to our customers. As a result of our protective action, the lawsuit against the company has been withdrawn and Waldman Diamond New York is operating as usual. We are confident that, after restructuring our banking in New York, the company will come out of Chapter 11 stronger and more robust than before.”
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