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Allied Says it is Close to Settling Fraud Claim

April 25, 1991

CINCINNATI (AP) _ Lawyers for Allied Stores Corp. and its bondholders said Thursday they are close to settling a $1 billion fraud claim that threatened to delay Allied’s emergence from reorganization.

David Heiman, chief lawyer for Allied and Federated Department Stores Inc. told a bankruptcy judge a reorganization and repayment plan to be filed Monday will include a settlement offer.

″We think the committee (of bondholders) and Allied are in general agreement with what it will take. We view that as exceptionally good news,″ he said.

Federated and Allied, which own Bloomingdale’s, Lazarus and seven other department store chains, have been in Chapter 11 reorganization since January 1990. They sought protection from their creditors under a $7.7 billion debt load - much of it junk bonds that Campeau Corp. used to take them over.

Bondholders who financed Campeau’s takeover of Allied in 1986 contend the Toronto-based company should have repaid them when it sold Allied’s Brooks Brothers and Ann Taylor chains. Instead, Campeau used the money to finance the Federated takeover.

″We have had serious negotiations about what kind of distribution would be made to the bondholders,″ said Ellen Werther, the bondholders’ chief lawyer.

Ms. Werther said she was cautiously optimistic about reaching a settlement, but added, ″To say we have a done deal would be premature.″

After the plan is filed, bondholders will decide whether to accept Allied’s offer, Ms. Werther said.

At the request of both sides, U.S. Bankruptcy Judge J. Vincent Aug put off deciding whether to have an auditor look into the fraud claims. Aug agreed to a delay despite a government trustee’s argument that bondholders asked for the audit to intimidate Allied.

″Everything we’ve heard today indicates this request is intended to improve a bargaining position,″ said Assistant U.S. Trustee Neil Weill.

The bondholders are barred by Aug from suing Allied until it has filed its reorganization plan. Ms. Werther has said the bondholders won’t give their required approval until their fraud claims are settled.

Heiman said Thursday that if the claim isn’t settled by May 31, 1992 and an audit has not begun, Allied would agree to let the bondholders file a fraud lawsuit.

The company has decided how much money its reorganization plan will offer to settle the fraud claims, Heiman said, but he did not reveal the amount.

The plan is to outline whether suppliers, bondholders and other creditors will receive cash, stock or new bonds to settle their claims against Allied and Federated.

Also Thursday, Aug agreed to let Federated open a new Rich’s department store in Atlanta and settle a $6 million dispute with an insurance company. Aug also agreed to let Allied to remodel a Maas Brothers store in Tampa, Fla.

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