DELiA*s to File Ch. 11 and Liquidate Before Christmas

No Virginia, there won't be a Santa Claus for teenage girls' clothing retailer dELiA*s Inc. (DLIA) , which plans to file for bankruptcy and liquidate before Christmas.

The seller of apparel, accessories and footwear through its website, direct-mail catalogs and mall-based retail stores announced Friday it has entered into an agreement with Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC to liquidate its assets.

New York City-based DELiA*s said Hilco and Gordon Brothers will liquidate the company's merchandise and dispose of its furnishings, trade fixtures, equipment and other assets.

The sales are expected to start as soon as Friday.

The company said in the statement that it will file for Chapter 11 protection "in the very near term," but as of Friday morning, a bankruptcy petition hadn't yet been filed. DELiA*s decided to go out of business after it was "unable to find a merger partner, or obtain an acquisition or financing proposal enabling the company to remain a going-concern," the statement said.

The troubled retailer put itself on the block in September, hiring financial advisers from Janney Montgomery Scott LLC and legal advisers from Honigman Miller Schwartz and Cohn LLP to guide the strategic review, including a sale of the company after receiving inquiries from interested parties.

It also noted that it may still opt to pursue debt or equity financing options instead of an M&A deal.

The Honigman team includes Michael Ben, Donald Kunz, John Kanan and Melanie VanAntwerp.

Sources had previously told The Deal that dELiA*s was likely to file for bankruptcy protection before Christmas.

DELiA*s warned in its latest quarterly report filed with the Securities and Exchange Commission on Sept. 16 that it expected to run out of liquidity to meet its cash requirements in the next 12 months absent additional funds.

According to the company's financial report, dELiA's had $3 million in cash on its balance sheet as of Aug. 2.

During the second quarter ended Aug. 2, the company reported a net loss of $13.59 million on $25.73 million in revenues, compared to a $12.1 million net loss on $33.17 million in revenues during the same period last year. Comparable sales were down 17.5% during the quarter, compared to a 17.1% decline during the same quarter in 2013.

DELiA*s had recapitalized in February, raising $44.1 million in private placements of convertible debt and preferred convertible stock from an investor group led by David Gallo's Valinor Management LLC.

Other investors who participated in the offering included Tiger Global Management, Flatbush Watermill LLC, Amica Mutual Insurance Co., Cooper Creek Partners LLC, P.A.W. Partners and Prentice Capital Management LP.

DELiA*s replaced a five-year, $25 million revolving credit facility from GE Capital Corp. with a four-year, $30 million revolving credit facility from Needham Heights, Mass.-based Salus Capital Partners LLC in June 2013, and later reduced the cap on the Salus loan to $25 million.

GE Capital's corporate retail finance division also provides the company with a $15 million letter of credit facility, which includes a cash collateral requirement to support the letters of credit issued under the facility.

The Salus facility bears interest at either 6.25% or an unspecified base rate plus 300 basis points, whichever is higher, and matures on June 14, 2017.

The loan, which does not include any financial covenants, is secured by substantially all of the dELiA's assets.

The company recorded $75.59 million in assets and $37.55 million in liabilities as of Aug. 2, according to the Sept. 16 quarterly report.

DELiA's s stock, which is listed on the Nasdaq, was trading at 2 cents per share Friday morning, down more 83%. It closed at 12 cents on Thursday.

"The company does not anticipate any value will remain from the bankruptcy estate for the holders of the company's common and preferred equity," dELiA*s said in the statement Friday.

Company spokesman Jean Fontana couldn't immediately be reached for comment on Friday morning.

—Lisa Allen and Richard Collings contributed to this report.

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