Brookstone goes bust; no further impact on OSIM

TROUBLED US retailer Brookstone, which was 55 per cent owned by lifestyle products firm OSIM International, has officially gone bust, two months after it defaulted on an interest payment of its debt.

An OSIM spokeswoman told The Business Times yesterday that Brookstone had filed for Chapter 11 protection, a bankruptcy procedure under US law that enables companies to restructure and seek new sources of financing with new shareholders while remaining operational.

There will be no further financial effects on OSIM, which had made a $77 million write-off of Brookstone in 2009.

In the fourth quarter of 2013, OSIM also made a $31 million "impairment and foreign translation loss of Brookstone". Out of that, $18 million was a currency adjustment that has no cash-flow or equity effects. The remaining $13 million relates to the impairment of senior preferred notes OSIM bought in 2010. Effectively, OSIM's ill-fated investment has been fully impaired for.

"The process of filing for Chapter 11 is being managed by Brookstone and its financial and legal advisers in America," the OSIM spokeswoman said. "As such, OSIM is not able to comment on the precise status at this time nor on the likelihood or identity of any potential new investors."

The Wall Street Journal had reported on March 26 that privately owned retailer Spencer Spirit Holdings was expected to pay around US$120 million for Brookstone.

Brookstone, formerly a Nasdaq-listed specialty retailer, was taken private by OSIM in 2005 together with Temasek Holdings and US buyout firm JW Childs Associates. OSIM led the consortium in the US$456 million acquisition, then billed as a way to broaden its earnings base and expand in the massive US market.

OSIM had been confident in Brookstone despite the latter's propensity to make three quarters of losses before making it up in the fourth quarter of the year.

But the retailer weighed on OSIM's earnings, together with finance costs OSIM took on. After a recession that battered US retailers, OSIM bit the bullet and wrote off its investment in 2009. Since then, OSIM, known for its massage chairs, made a comeback through strong sales in Asia. There were also murmurs of a Brookstone initial public offering.

As late as end-September 2013, OSIM said it had 258 Brookstone outlets. At end-2013, mention of the retailer had all but disappeared from OSIM's financial statements, relegated to a footnote in its 2013 annual report.

In January 2014, Brookstone, which reportedly has US$140 million of debt, missed a payment to creditors. It had just US$1.1 million in cash on Sept 28, 2013, down from US$32 million a year ago.