LNT creditors want to share probe info

By Staff -- Home Textiles Today, 9/29/2008 1:16:00 PM

Wilmington, Del. — The forensic accounting probe into pre-bankruptcy transactions involving Linens ’n Things is broadening even as the company reported continued losses on its latest monthly operating report.

In an unusual request, three groups with commonly competing — at times, adversarial — interests, are seeking federal bankruptcy court approval to work together, including the sharing of privileged and confidential information, to determine if any recoveries might arise from the investigation. An Oct. 7 hearing is expected on the “common interest agreement” between the ad hoc committee of noteholders, the unsecured creditors committee and debtor LNT.

The court filing also confirmed that the prospects are dim for a payout to unsecured creditors.

“The two committees and their members believe that they share a community of interest in connection with the review because, inter alia, the only likely source of a distribution for the unsecured creditors is the potential claims and/or causes of action,” which may be successfully prosecuted, court documents stated. LNT has pledged its cooperation.

If approved, information obtained under the review, currently being conducted by consultant Traxi, would be shared by the two committees to the extent their joint interests allow. Additionally, the Official Committee of Unsecured Creditors is seeking broad subpoena powers without further court authorization for the production of documents and testimony wherever the investigation leads.

“At present, the OCUC anticipates that this may include, at least, document and deposition discovery from certain former officers and directors of the debtors, the equity owners of the debtors and certain professionals employed by the debtors during the pre-petition period,” the motion stated. Moreover, that discovery “may lead to further persons or entities” in the probe.

When the investigation was launched and Traxi was hired over the summer, the lead attorney for the unsecureds flatly refused to discuss the investigation or where it was focused.

In the meantime, LNT’s financial status remains challenged. In its August operating report, the company recorded gross revenues of $118.6 million on its income statement with a net loss before reorganization expenses of $16.1 million. After bankruptcy items, the loss increased to $33.3 million for the month. Since May, when the company filed for bankruptcy, it has lost $142.7 million.

LNT did not provide year-over-year comparisons, showing instead month- to-month changes, which are not directly comparable.

Its balance sheet, however, continued to show declines in shareholders’ equity, dropping to negative $75 million last month from a negative $45 million in July, compared to a positive $67.3 million in equity pre-petition. LNT was purchased for $1.3 billion in 2006 by an investor group led by Apollo Management.

The filing listed goodwill and identifiable intangible assets at $388.1 million.