Deb Shops files for bankruptcy protection

Four years after being purchased by Lee Equity Partners L.L.C., Northeast Philadelphia retailer Deb Shops Inc. said Monday that it filed for Chapter 11 bankruptcy protection.

The company said it hoped to sell its assets and reorganize into a new company quickly so that business continues unabated at its 318 apparel stores, chief financial officer Barry Susson said in filings Sunday in U.S. Bankruptcy Court in Delaware.

Deb Shops, which markets trendy and plus-size garments for teenagers and women ages 13 to 25, had assets of about $124.4 million and liabilities of roughly $270.1 million as of April 30.

Its largest unsecured creditor, HBK Capital Management of Dallas, was owed nearly $29 million.

Under a reorganization plan, Deb Shops' senior lenders would buy the company out of bankruptcy by September. A preliminary, or "stalking-horse," credit bid of $75 million will be guided by Ableco Finance L.L.C. on behalf of the lenders.

Lee Equity, founded by well-known buyout investor Thomas H. Lee, would have an ownership stake in the new company moving forward. Lee Equity bought Deb Shops in 2007 for $395 million, ending its tenure as a publicly traded company.

Deb Shops' business began to deteriorate after the stock market crash of 2008 hurt sales and the company violated terms of its loan agreements in January 2009.

The company restructured its debt and in May 2010 hired a new chief executive officer, Mark Hoffman. Sales have been recovering, but Deb Shops "remains overburdened with debt," the company said.

Deb Shops leases a 280,000-square-foot corporate office and distribution center on the 9400 block of Blue Grass Road near Northeast Philadelphia Airport. The distribution center is staffed by 87 full-time unionized employees. The corporate office is staffed by 120 people, while 3,194 full-time and part-time employees work at its stores, the company said.

It was founded in the 1930s as a single store in West Philadelphia and went public in the 1980s.