Whitehall Jewelers needs cash to take it beyond end of June, may file bankruptcy

By Caroline Salls

Pittsburgh, June 16 - Whitehall Jewelers Holdings Inc. may be forced to file for bankruptcy, and it is seeking the additional financing needed to fund its working capital and capital expenditure needs beyond the end of June, according to an 8-K filed with the Securities and Exchange Commission.

According to the 8-K, based on the company's cash on hand and current and expected cash flow from operations, the borrowing availability under Whitehall's senior credit agreement will not be enough to meet its working capital and capital expenditure needs beyond the end of June.

Therefore, the company needs additional financing in the near term to fund its working capital and capital expenditure needs, and it is actively considering financing options, as well as a bankruptcy filing.

After the company filed its 10-K on May 16, Whitehall said many of its vendors have requested additional payment assurances or accelerated payment terms before shipping additional merchandise to the company.

These vendors have indicated that they would not be willing to continue to provide merchandise to the company on a consignment basis without similar additional payment assurances or accelerated payment terms.

If the company is unable to provide these payment assurances or does not agree to accelerated payment terms, Whitehall said it will likely be unable to maintain its inventory levels.

In addition, term loan credit agreement lender PWJ Lending II LLC has informed the company that it does not plan to lend any additional funds under the credit agreement at this time.

The administrative agent for the company's senior credit agreement has also implemented a $5 million availability reserve effective as of May 30, which results in a $5 million reduction in liquidity under the senior credit agreement.

Default notices

On June 11, Whitehall received a notice of default from Fabrikant Receivables, LLC on a $3.06 million unsecured promissory note and $1.56 million in additional unsecured trade debt in connection with Whitehall Jewelers, Inc.'s failure to pay the principal and interest due on the Fabrikant note and debt at maturity.

Whitehall also received a default notice from Rosy Blue, Inc. on a $2.07 million unsecured term promissory note in connection with Whitehall's failure to pay $81,405 of invoices due to Rosy Blue in late May and early June.

The company has 10 days from the receipt of the notice to cure the Fabrikant default before the promissory note and additional debt can be accelerated. In addition, the note will begin to bear interest at 8% instead of 6% upon occurrence of a default.

Whitehall also has 10 days to cure the Rosy Blue default. If the event of default is not cured or waived within that grace period, the principal amount of the Rosy Blue note will be payable upon demand before its March 31, 2009 maturity date, and the interest will increase to 8% from 6%.

Under the terms of $13.5 million in other extended unsecured term promissory notes, the total principal amount that Whitehall is permitted to repay to holders of unsecured term promissory notes before March 31, 2009 is limited.

If Whitehall pays any amount in excess of the limit, it would constitute an event of default under the other notes, which would trigger an increase of interest to 8% from 6%.

The company said it could not pay in full the principal amount outstanding under the Fabrikant note, the Fabrikant debt and/or the Rosy Blue note before March 31, 2009 without triggering this type of event of default under the other extended notes.

According to the 8-K, Whitehall's failure to pay any principal amount in excess of $1 million or its failure to observe any term of an agreement evidencing debt in excess of $1 million that would permit an acceleration of the maturity of the other extended note debt would trigger an event of default under the company's credit agreement with LaSalle Bank NA, Bank of America NA and Wells Fargo Retail Finance, LLC.

As a result of this cross-default provision, an event of default would arise under the senior credit agreement if Whitehall fails to cure its defaults on the Fabrikant note, the Fabrikant debt and the Rosy Blue note or any events defaults that may arise on the other extended notes.

Additionally, a cross-default under the company's term loan credit agreement would also constitute an event of default under the senior credit agreement.

As of June 13, the company had $64.5 million of outstanding borrowings under the senior credit agreement and $40 million of outstanding borrowings under the term loan credit agreement.

Director resigns

Finally, Whitehall announced that Daniel Platt has resigned as a director of the company, effective June 10.

Whitehall is a Chicago-based jewelry retailer.

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