Children's clothing retailer Hartstrings L.L.C., based in the Philadelphia suburbs and owned by the Maryland private-equity firm American Capital L.P., has declared Chapter 7 bankruptcy and plans to dissolve the business.
The filing in U.S. Bankruptcy Court in Wilmington on Thursday showed that the Strafford company, which has 28 stores nationwide and a wholesale business, owes secured and unsecured creditors more than $39 million. All but a few hundred thousand dollars of that is owed to American Capital.
The filing comes less than two months after the terminations of both president and chief executive officer Kevin Mahoney and chief financial officer Jean Lewis, Bankruptcy Court records show. Mahoney has since taken a job as president of Not Your Daughter's Jeans in Vernon, Calif.
It also comes a year after the company entered into an agreement with actress Tori Spelling to develop a children's clothing line under the Little Maven label.
In its voluntary petition and other court documents, no reasons were spelled out for what led to Hartstring's decision to liquidate. The company was founded in 1979 in a private home, its website says.
All of the company's outstanding secured debts with American Capital originated in 2005 and 2006, the records show.
Filings with securities regulators showed American Capital had lent millions to Hartstrings: In March, $7.6 million in senior debt was set to mature; in May, $7 million more, according to a recent quarterly financial filing by American Capital.
Between April 18 and its bankruptcy declaration, Hartstrings made $7.3 million in payments to American Capital, according to court documents.
Meanwhile, its top two executives received more than a million dollars combined: CEO Mahoney received about $726,000 in compensation, a sale bonus, and auto and rent payments between April 11 and May 24; CFO Lewis collected $453,317 in compensation, a sale bonus, and a fee for future services, according to court records.
Also on April 18, nearly $6.2 million worth of assets were transferred to New York-based Parigi Enterprises, L.L.C., a clothing manufacturer. It was not listed in the bankruptcy filing as a creditor.
A phone message Friday with American Capital, which has $37 billion in assets under management, was not returned. Nor were messages left with Parigi and with Hartstrings bankruptcy attorney Robert S. Brady in Wilmington.