Lucky draw gets retailer lenient judge to hear its bankruptcy case; Carter Hawley Hale may dominate the proceedings.

Lucky draw gets retailer lenient judge to hear its bankruptcy case

Retail giant Center Hawley Hale Stores Inc. got a big break in U.S. Bankruptcy Court last week when Judge James Dooley, 70, was assigned to the department store chain's Chapter 11 filing -- Dooley is regarded by lawyers as one of the most receptive to debtor's needs among the 13 bankruptcy court judges in Los Angeles.

"Judge Dooley is among the most prodebtor judges here," said Marc Cohen, bankruptcy specialist with the Century City-based Greenberg, Glusker, Fields, Claman & Machtinger firm. "He is also very experienced, and won't get panicked by a big case."

Dooley is a 14-year veteran bankruptcy judge, who worked as a U.S. Attorney for 23 years and served as an Army first lieutenant in North Africa and Italy in World War II. He is expected to be good news for Carter Hawley: He will allow the big retailer plenty of time to devise a reorganization plan, and he will likely approve it, said observers.

The presence of Dooley may even mean that Carter Hawley Chairman Philip Hawley's proclamations that he won't sell any part of the 88-store chain's assets will come true, and that Hawley and his team of topflight lawyers - from Los Angeles-based Stutman, Treister & Glatt, a premier bankruptcy law firm - may dominate the reorganization process.

For Carter Hawley, Dooley's first decision was already a positive one. Last week the judge brushed aside creditor concerns in allowing Carter Hawley to borrow $150 million from Chemical Bank of New York - fresh cash that has a priority claim on Carter Hawley's assets. Existing creditors are bumped back a space in line. But Carter Hawley needs the money to operate, Dooley evidently reasoned.

For Carter Hawley creditors and bondholders, Judge Dooley's presence means they may have to wait longer to get repaid, and basically that they will have to abide by terms devised by Carter Hawley and its lawyers, sources said.

But for Carter Hawley shareholders, including the 14,000 employees who own 45 percent of the company's stock, the prospects are still bleak, said one bankruptcy sharpie.

"The best hope that the employees have is that they are going to get paid any prepetition (bankruptcy) compensation they are owed," said David Frauman, head of law firm Milbank, Tweed, Hadley & McCloy's Los Angeles bankruptcy practice.

Carter Hawley, parent of the Broadway, Weinstocks and Emporium department store chains, declared bankruptcy Feb. 11, and was assigned to Judge Dooley that day by random selection.

"The judges are placed on an electronic wheel, on a computer, and issued randomly to cases as they come in," explained Evette Pico, intake work leader for U.S. Bankruptcy Court in downtown Los Angeles, last week. "I saw the clerk assign the case myself."

The $2.3-billion-in-sales Carter Hawley had been unable to make a Feb. 8 interest payment on part of its $350 million in outstanding junk bonds, or make good on about $1 billion of other IOUs in a timely fashion.

In its last desperate weeks of solvency prior to Chapter 11, Carter Hawley even sold a corporate jet to help make payroll payments.

But now that Carter Hawley is in Chapter 11, it has legally put all pre-filing creditor claims on hold, although new bills will be paid on time.

Carter Hawley's quartet of lawyers - Alan Pedlar, Robert Greenfield, Bruce Bennett and Herman Glatt from Stutman Treister - will begin devising a reorganization plan to present to the court, ostensibly within 120 days.

However, almost certainly the Stutman Treister lawyers, citing the complexity of the case, will seek and get extensions from Judge Dooley on the 120-day period.

"There will be several requests for extensions in the (120-day) exclusivity period," said lawyer Cohen. "Judge Dooley will grant the extension.

The Stutman Treister lawyers are highly regarded by their peers and rivals in Los Angeles bankruptcy circles. "Herman Glatt is a bankruptcy magician," said Scott Dew, lawyer with the Century City-based Levene & Eisenberg, a leading bankruptcy law firm. "A guy like Herman has an ability to get a difficult deal done, to orchestrate a big deal on his client's behalf."

Glatt, 62, nameplate partner, native New Yorker and Harvard Law School graduate, will probably earn $450 an hour for his exploits on Carter Hawley's behalf.

Already, Carter Hawley lined up $150 million of special interim financing last week from Chemical Bank of New York, as part of an $800 million financing package.

About $250 million of that financing will be considered "debtor-in-possession" cash - fresh money from Chemical Bank to finance operations while in Chapter 11. This new financing will have priority claim on Carter Hawley assets, further pushing back claims of existing creditors and bondholders.

According to courtroom documents, Jeffrey Chanin, Westside investment banker, is counseling Carter Hawley on how to raise cash and devise a financial plan.

For Carter Hawley junk bondholders, it is likely the Carter Hawley lawyers eventually will propose to Judge Dooley they exchange their junk for new stock in the department store chain, a so-called debt-equity swap, said lawyers.

"It is almost a given that there will be a debt-for-equity swap. This is an overleveraged company that isn't likely to be able to repay those bonds," said Frauman of Milbank Tweed.

For now, bond traders are extra-wary of the junk debt. Even as the junk traded last week for about 15 cents per dollar of face value, one trader, Chriss Street of the Los Angeles-based Seidler Amdec Securities brokerage house, said he was steering clear.

Said Street, "Enormous sums of cash are needed to upgrade Carter Hawley operations," particularly the Emporium chain. That cash, implied Street, has to come from somewhere, and that somewhere may be Carter Hawley creditors.

Vendors, those which sold goods to Carter Hawley, will probably get some fraction of what they are owed, although few last week were willing to hazard a guess as to how much.

The creditors will not stand about entirely idle. They will likely form committees to press their cases before Judge Dooley. "Sometime within the next week a creditors committee will form and hire counsel," said lawyer Cohen, of Greenberg Glusker. "That is one plum a lot of firms are angling for."

PHOTO : Judge Dooley: Pro-debtor