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HVB Sells Spiegel As Hedge Fund Bets On Eddie Bauer Comeback

A hedge fund looking to own a stake of Eddie Bauer Holdings bought a $21 million piece of The Spiegel Group's bank debt last week from HypoVereinsbank.

A hedge fund looking to own a stake of Eddie Bauer Holdings bought a $21 million piece of The Spiegel Group's bank debt last week from HypoVereinsbank. The bid was between 90-90 1/2 after the name climbed from 85-88 during the week. Spiegel's business will be reorganized under its Eddie Bauer division when it emerges from bankruptcy. "The creditors were comfortable and excited about the prospects of owning Eddie Bauer," said Jim Brewster, Spiegel's cfo. "I think the market is seeing the same positive trend."

According to the plan, Spiegel's unsecured creditors, which include the banks, will recover approximately 91% of their claims through a combination of 47% in cash and 44% in equity. "It's an equity play upon the belief that Eddie Bauer is going to be worth something valuable and improve in the future," one dealer noted. The plan of reorganization provides for a better-than-expected recovery for bank debt holders, a trader said. "It has surprised some people," he added. HVB officials did not return calls.

The debt is trading at the minimum market value that Spiegel put into the plan, but there is obviously upside value and also risk, said Brewster. "We can't guarantee the levels where the stock will trade," he said. The value the company put into the plan was $865 million dollars between enterprise value and cash on hand. "Getting the company sold down to its profitable core, getting rid of the unprofitable businesses and reaching an agreement with its controlling shareholder," were decisive factors for the satisfactory recovery, said David LeMay, partner at Chadbourne & Parke and counsel to the unsecured creditors. German billionaire Michael Otto, who controlled 89% of Spiegel's public shares, paid Spiegel's creditors $104 million to release himself from potential legal claims.

Downers Grove, Ill.-based Spiegel filed for bankruptcy in March 2003. At the time of the filing Commerzbank, Dresdner Kleinwort Wasserstein, DZ Bank, Bank of America, Deutsche Bank, Landesbank Hessen-Thüringen, Bankgesellschaft Berlin AG, J.P. Morgan, Westdeutsche Landesbank, ABN Amro, Bank of New York, HSBC, HVB and Credit Suisse First Boston were listed in court documents as holders of the claims.Bill Kostorus, interim ceo and chief restructuring officer for Spiegel and managing director at Alvarez and Marsal, the company's bankruptcy advisor, was traveling and could not be reached.

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