London Fog expects to miss payments

January 05, 1995|By Timothy J. Mullaney and Ross Hetrick | Timothy J. Mullaney and Ross Hetrick,Sun Staff Writers

London Fog Corp.'s new chief executive said the company will not be able to make all of its debt payments in the fiscal year that begins March 1, but Robert E. Gregory Jr. said the company's Baltimore and Eldersburg operations are not threatened by its pending restructuring.

The local facilities produce and distribute products that London Fog will continue to make after what he acknowledged will be a sharp restructuring of a money-losing firm that has more debt than it can repay, Mr. Gregory said yesterday in an interview.

"I don't think the business problems, the operating problems or the financial problems are going to have a negative impact on this facility here or in Eldersburg," said Mr. Gregory, seated at a small table in a room off the work floor of London Fog's factory in Park Circle Business Park. "This business will be run. There is too much value here."

Mr. Gregory's appointment as chairman and CEO was announced Tuesday, the same day the Darien, Conn.-based company said it had hired Mr. Gregory's longtime lieutenant, C. William Crain, to be president and chief operating officer.

Both men worked most recently at Gitano Group Inc., a jeans and sportswear company that Mr. Gregory sold for $100 million to Fruit of the Loom Inc. last spring. The sale took place with the blessing of a bankruptcy court judge after Mr. Gregory took the company into Chapter 11 to complete his reorganization of company finances left in disarray by his predecessors.

Mr. Gregory, 52, sold off most of Gitano's assets before the Chapter 11 filing, leaving a small licensing and clothing design concern. Even that business had to be sold after its biggest customer, Wal-Mart Stores Inc., said it would refuse to do more business with Gitano after the company pleaded guilty to customs fraud that occurred before Mr. Gregory and Mr. Crain took over.

But the new chief executive said the fix needed at London Fog is not nearly as dramatic as what he did at Gitano. Despite industry experts' concerns that hiring the managers who broke up Gitano might mean the same was in store for London Fog, Mr. Gregory said he was not brought in to cut jobs and essentially liquidate the company.

He pointed out that he and Mr. Crain, 53, signed four-year contracts whose value largely depends on turning London Fog back into a profitable, going concern.

"I made my reputation growing businesses," Mr. Gregory said, pointing to his eight years as president of VF Corp., the Pennsylvania-based parent of Lee and Wrangler jeans that he left in 1990.

Indeed, Mr. Gregory said London Fog creditors would be poorly served if the company were to liquidate; the company's owners would be unlikely to get any money in a quick dismantling. He said London Fog would be worth as little as $125 million on liquidation, far less than the company's $425 million in secured debt.

The debt, owed to a consortium of lenders led by Chemical Banking Corp. and including GE Capital Corp and BankAmerica Corp., is secured by real estate and business property whose value was put at $277 million in a filing with the Maryland Department of Assessments and Taxation.

The lenders' poor prospects in a forced reorganization are a key to London Fog's belief that it will get its debt reduced as lenders decide they would rather have a good chance of getting part of their money than a slim chance at getting all of it.

Mr. Gregory said he was confident that missing payments later this year would not lead the banks to foreclose on London Fog's collateral.

"I'm trusting that smart people won't do stupid things," he said, referring to the lenders. "What's their choice?" London Fog's short-term operating picture, however, is not bright. The company will lose money even before interest payments for the fiscal year that ends next month, he said. The company's sales are now about $350 million annually, Mr. Gregory said, down from about $375 million in 1993.

Precise loss figures are not available. London Fog has been private since a leveraged buyout in 1988.

A group led by the New York investment firm Merrill Lynch & Co. bought the company from the original buyout group in 1990. Chicago-based GKH Partners became a partner when London Fog acquired GKH Partners' Pacific Trail Inc. last year.

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