Eddie Bauer starts consent solicitation for 5.25% convertibles

By Jennifer Chiou

New York, Sept. 5 - Eddie Bauer Holdings, Inc. said it launched a consent solicitation for its 5.25% convertible senior notes due 2014.

The company said it will pay a consent fee equal to $2.50 for each $1,000 principal amount of tendered notes.

The fee will be paid to holders of record as of 5 p.m. ET on Sept. 5 if the proposed amendment becomes effective by then.

The consents will allow Eddie Bauer to extend the current limitation on ownership of its common stock and other equity securities to Jan. 1, 2012 from Jan. 4, 2009. The extension would require approval from holders of both a majority of the notes and a majority of the company's common stock.

The ownership limitation states that no person may acquire 4.75% or more of the company's stock or equity securities and that anyone owning 4.75% or more can only acquire additional stock after receiving company approval.

The limitation was put into place because the company's ability to use the net operating loss carryovers from before its bankruptcy emergence would be materially limited if a change in ownership occurred, especially if Eddie Bauer stock remains near its current levels, according to the filing.

Eddie Bauer said it believes that the limitations currently imposed generally should not preclude use of its federal NOLs, assuming the company has sufficient taxable income in future carry-forward periods to use those NOLs.

The company previously said it was looking to shore up its ability to offset income with net operating loss carryovers, according to an 8-K filing with the Securities and Exchange Commission.

"We believe that occurrence of a future ownership change prior to the utilization of a material portion of our federal NOLs [net operating loss carryovers] could have a material adverse effect on the company and that providing our board of directors with the ability to assure the availability of current federal NOLs to offset against future income through January 1, 2012 would be of great value to the company," Eddie Bauer said in the previous filing.

As of June 28, Eddie Bauer said it estimates that it had about $370 million of pre-bankruptcy federal NOLs available to offset against future income for federal tax purposes.

The company already said it will begin the consent solicitation if initial discussions with noteholders and stockholders are positive. It announced plans for the solicitation on Aug. 4.

The company previously said it considered alternatives to extending the ownership limitation, including the adoption of a poison pill, but decided to seek extension of the ownership limitation because of the greater level of certainty in its ability to prevent an ownership change.

MacKenzie Partners, Inc. is the information and tabulation agent (800 322-2885 or call collect 212 929-5500).

Eddie Bauer is a Bellevue, Wash.-based specialty retailer that sells casual sportswear and accessories.

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