New financing may give battered dry cleaner fresh start

Tuchman Cleaners has been helping its customers look pressed and professional for more than a half century. But for the last few years, running the Indianapolis chain would make anyone feel harried and haggard.

The tumultuous times might finally be coming to an end. As early as this month, parent company US Dry Cleaning Corp. of Newport Beach, Calif., may finalize a $7 million financing package and exit Chapter 11 bankruptcy.

“At this point, it is my understanding the final thing to do is prove to the court the financing is in place, the funds are in the bank, and documentation is done,” said Penelope Parmes, a Costa Mesa, Calif.-based attorney for US Dry Cleaning’s largest secured creditor.

US Dry Cleaning’s September 2008 purchase of Tuchman was supposed to end years of financial strain for the 25-store Indianapolis chain, but it didn’t happen. Eighteen months later, US Dry Cleaning slid into bankruptcy, the same fate that befell Tuchman’s prior owner, Phoenix-based National Dry Cleaners.

Tuchman’s turmoil is hardly unique in the $7 billion dry cleaning industry. Over the last decade, about 20 percent of all U.S. dry cleaners closed, in part because the trend toward casual workplaces cut into business. Then the recession hit, and consumers reined in spending even more.

US Dry Cleaning had grand plans to “roll up” the fragmented industry before it shifted into survival mode. Tuchman was the company’s largest purchase. Overall, US Dry Cleaning has 600 employees and 70 stores generating $25 million in annual revenue.

Without the financing, “each division probably would be put up for sale,” Parmes said. “The impact for everyone would be extremely difficult. Everyone would lose money. Potentially, people would lose jobs. It was not the outcome anyone was looking for.”

Even with the financing, US Dry Cleaning isn’t out of the woods. Bankruptcy court records show the company had intended to raise $20 million, but failed to secure enough investors. The plan now, Parmes said, is to use the $7 million to exit bankruptcy and replenish working capital, then to raise additional money through a public stock offering in about nine months.

Most of the $7 million in new financing is coming from the largest secured creditor—an investment group that includes company insiders. That group, which is chipping in $4 million, was owed as much as $19 million—triple what US Dry Cleaning’s chains likely would fetch if they were sold off as part of the company’s liquidation, an analysis filed in bankruptcy court shows.

Instead of swallowing that massive loss now, the group upped the ante, putting in more money and receiving stock in exchange for much of its debt. If the company rebounds and returns to profitability, investors would wipe out, or at least reduce, their losses.

It’s not clear how much of the infusion would flow to Tuchman, which in recent years fell behind on paying local taxing authorities, bankruptcy records show. From US Dry Cleaning’s March 2010 Chapter 11 filing through July of this year, Tuchman lost nearly $129,000 on $10.1 million in revenue, financials filed with the court show. Mike Washington, who leads Tuchman, did not return calls.

“This exit financing will really change how the entire company is operating—all for the better,” said Parmes, the attorney representing the large creditor.

But not everyone is so upbeat. A year ago, the U.S. Trustee’s Office began pushing for the appointment of a trustee to evaluate whether US Dry Cleaning chains had any real hope of a successful reorganization.

Though Parmes says the office finally backed off, its filing was highly skeptical of whether US Dry Cleaning’s management and board were up to the task of turning around the company.

“The concern of the United States trustee is that the current board … may be failing to come to grips with certain realities,” court records said. “There may be a chance to salvage something through either an orderly liquidation or sale of assets while the companies are still operating.”

Insiders scarf up shares

Not everyone is afraid to invest in stocks these days. Some insiders at central Indiana firms are taking advantage of the market swoon to buy shares at a steep discount to prices earlier this year.

In late August, Brightpoint Inc. board member Tom Ridge, the former director of Homeland Security, purchased 10,000 shares of the wireless-device distributor for $8.08 apiece—nearly 40 percent less than the shares were fetching in February.

Other buyers in recent weeks include Kite Realty Group Trust director Gerald Moss—who purchased 5,000 shares of the commercial real estate firm at $3.84 apiece, 69 percent below the March high—and CNO Financial Group director Frederick Sievert—who bought 20,000 shares of the insurer at $5.93 apiece, 29 percent below the May high.•

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