President Obama's suit maker scored some breathing room as a federal bankruptcy judge allowed Hart Schaffner Marx to continue making payments to employees and creditors seem willing to work with the clothier as it works toward solvency.
An attorney for the Chicago-based company requested U.S. Bankruptcy Judge Bruce Black allow the clothier to exceed the cap on employee compensation for a small number of workers that whose payments were stalled following the company's Jan. 23 bankruptcy filing.
George Panagakis requested Black waive the cap to maintain morale at the company, which has about 800 workers at a Des Plaines plant. Black also allowed Hartmarx Corp. to continue paying lawyers and other contract employees as it seeks to reorganize or find a buyer, though attorneys representing a number of unsecured creditors mentioned that it was a "long list."
Gretchen Silver, a senior trial attorney with the office of the U.S. Trustee, also expressed concern about compensation rates during restructuring noting that Panagakis' $945 per hour was "creeping to rates we have not seen before in Chicago."
Yesterday, Black postponed discussion of further lending, extending a line of credit of $160 million to continue operating, until next week.
Taras R. Proczko, a senior vice president at Hartmarx who was at the hearing, said there are currently no plans to downsize staff at the Des Plaines facility.
The company is already utilizing existing credit to continue filling orders, but one expert wonders about its next move.
Under current market conditions, it's getting increasingly harder for corporations to seek financing through a restructuring, says University of Chicago law professor and bankruptcy expert Douglas Baird.
"At some point you have to make a decision as to whether you are going to cut your losses," Baird says, adding that creditors might not be willing to throw good money after bad.
A buyer might only be willing to step in if the company is profitable, which according to documents filed with the bankruptcy court is questionable. The company stated that it would need the extended line of credit to cover wages and expenses from vendors.
"If it's not cash-flow positive you've got a big problem in the current environment," Baird said.
Proczko says several locals of the UNITE HERE union represent workers at the Des Plaines plant. Representatives for UNITE HERE did not return calls seeking comment.