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Whitehall Bidder Process 'an Outrage;' Landlords Seek Protection Against Jeweler

Aug 7, 2008 12:43 PM   By Jeff Miller, Avi Krawitz
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RAPAPORT...  Gordon Brothers Retail Partners filed a motion against Whitehall Jewelers Holdings after the jeweler accepted a stalking horse bid from another bidder some three hours before the stated deadline.

In court papers filed August 6, Gordon Brothers told the judge their bid was the “highest and best offer in the sale.” Gordon Brothers competed with Great American Group and Tiger Capital Group in Whitehall’s stalking horse, but was informed via e-mail at 1:32 a.m. that the bid was awarded to Great American Group. Lawyers wrote that the equity auction ended at 4:30 a.m. Whitehall's e-mail announcing the final offer three hours earlier "describes a deal with significant equity guarantees being offered. This is an outrage."

Gordon Brothers contended that Great American Group submitted a "disguised equity bid" that required security of about $72 million and a $25 million letter of credit from Bank of America.

"Gordon Brothers is shocked by the debtors' (Whitehall) actions here, the debtors having decided at the 11th hour to switch gears and accept what appears to be a different equity bid disguised as a fee bid in mid stream on no notice to Gordon Brothers, creditors or parties in interest," lawyers for Gordon Brothers wrote in their motion.

The lawyers reserved the right to present a claim at the sale hearing on August 8 if Whitehall did not consummate the transaction with Gordon Brothers on the terms agreed to the equity auction.

Friedman’s debtors attempt to block sale

In another twist for Whitehall Jewelers, debtors of Friedman’s Inc. on Wednesday filed to block the sale of Whitehall assets claiming Whitehall had not met obligations to Friedman’s in the buyout of 78 store locations.

Whitehall agreed in April to buy Friedman’s inventory and related property at 78 Friedman store locations, including assuming the leases of the properties, in Friedman’s bankruptcy case earlier this year. Whitehall, however, subsequently also filed Chapter 11.  Friedman’s debtors told the court that Whitehall may not have paid all of the cure amounts due, owing for 75 of the 78 leases.

Friedman’s debtors contended that since Whitehall had not met the necessary obligations, “Whitehall is without authority to sell, assume or assign any of the 78 leases…unless and until Whitehall has complied with such cure obligations.”

Landlords file motions to prevent stalking horse bid

A number of property developers, and landlords, of Whitehall also filed motions against Whitehall’s pending liquidation sales until their legal interests were met and protected by the court.

Landlord motions detailed  Whitehall’s failure to communicate auction results to them, the jewelers' assignment / re-assignment / sale of leases, and the lack of financial information or details from lease bidders. They also took exception with Whitehall's disregard for rules in ‘going out of business’ sales per lease agreements.

General Growth Properties Inc., Gregory Greenfield & Associates Ltd., and
Jones Lang LaSalle Americas Inc., jointly objected to  Whitehall Jewelers establishing auction procedures involving some 90 store locations.

Since the stalking horse bidding took place, "Landlords have heard nothing from the debtors regarding the results of the auction and whether the debtors intend to assume and assign any of the landlords’ leases."  The landlords sought a discovery period from the court prior to considering the sale of the leases.

Taubman Centers filed a motion against Whitehall claiming the jeweler failed to cure defaults under their lease agreements and therefore sale or assumption of any leases must be denied. Whitehall is responsible now for Taubman's legal fees.

Lawyers for Taubman told the court that Whitehall,  must prove that  assignment of leases will not disrupt the current and future tenant mix in the shopping centers.  The cure amounts, just to assume Taubman leases through August 31, 2008, (not including maintenance or taxes,) is about $109,100 for seven store locations.

"Nowhere in the debtors' motion is there a showing that all provisions of the leases including the use and radius clauses will be complied with," lawyers argued.

The Macerich Company, and Passco Companies LLC, in their motion to stop Whitehall from entering into the stalking horse agreement said they denied Whitehall's request to conduct sales "without restrictions" on existing leases and ordered the court to uphold that decision.

"A store closing sale or liquidation detrimentally impacts the shopping center as a whole, as well as the surrounding tenants individually, and the landlords have a primary interest in maintaining an appropriate and aesthetic appearance in their shopping centers."

Since Whitehall asked to run a sale through December 31, 2008, the landlords said "these are relatively small jewelry stores, and there is no justifiable reason for a store closing sale to continue" for five months.

Whitehall planned to post signage and use gimmicks that were out of compliance with shopping center rules and city ordinances, and thus the landlords in this case notified the court of the indemnity clause for any planned violations.

Westfield LLC filed a motion saying their leases prohibit going out of business sales. Nonetheless this group  asked for strict rules at time of sale, which detailed signage, toppers, hours of operation, etc. It is prohibited however of signage stating "going out of business," "Chapter 11 sale," "Lost Lease," "Court ordered sale," or "Total Liquidation Sale."

Sign walkers are also prohibited. Westfield objected to altering clauses in the leases and to the assumption of leases through auction of assets.

The McKinley Mall owners objected to Whitehall's sale as proposed. Lawyers for this Buffalo, New York, mall stated rules must be adopted between parties and the lease must be complied with while maintaining the dignity and value of the mall itself.
McKinley wanted any planned liquidation sale to end by October 1, 2008, for a longer period prejudices other tenants during the Christmas season.

"McKinley objects to Whitehall's attempt to invalidate unspecified portions of the lease and to prohibit McKinley from enforcing the terms thereof.

"The court should not provide Whitehall with the unfettered discretion to deem unspecified terms of the lease invalid merely because the debtors feel that those portions are restrictive."


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Tags: Compliance, Jewelry
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