Pension agency pushes back against Harry & David

The agency Harry & David intends to leave holding its $33 million pension bag ratcheted up its response in a Delaware bankruptcy court filing this week.

The Pension Benefit Guaranty Corp., the quasi-federal regulatory agency that picks up the tab when private pension programs fail, repeated its belief that the Medford-based company can successfully emerge from Chapter 11 bankruptcy even if a judge denies the company's request to shed its pension plan covering 2,700 past and present employees.

PBGC also asked federal bankruptcy Judge Mary Walrath in a Monday filing to not allow George Majoros Jr., Wasserstein & Co.'s president and chief operating officer and Harry & David board member, and investor Steven Lampe of Lampe, Conway & Co. to testify by deposition in an Aug. 1 hearing in Wilmington, Del.

Wasserstein & Co. controlled the majority of Harry & David stock.

Harry & David previously said Majoros and Lampe were unavailable for the hearing because they reside in New York City, about 120 miles away.

But because of the substantial financial stake the two men have in the matter and because both have agreed to provide new funding to the company, PBGC countered: "There can be no doubt, however, that Harry & David could convince these critical witnesses to make the short trip down to Wilmington for the hearing — if it wanted to do so."

A spokesman for Harry & David declined comment on Tuesday.

Earlier this month, Harry & David said if the court didn't approve termination of its pension plan, its ability to survive would be in jeopardy.

PBGC's filing argued, "Harry & David should not be permitted to negotiate with a bunch of insiders a prepackaged bankruptcy plan that would shift millions of dollars of liabilities onto the federal government based on the mere say-so of the very investors who stand to gain — but yet refuse to produce the key witnesses upon whose testimony the company relies."

The agency also argued the pension plan is easily affordable under Harry & David's own projections and that investors stand to make a sizeable return on their investments even if the plan is maintained.

"While Wasserstein, Lampe Conway, and other existing investors are not the only potential sources of exit financing for Harry & David, they are certainly logical ones, because they are familiar with the company and presumably want to avoid the entire loss of their preexisting investments which a Chapter 7 liquidation would entail," said PBGC in the filing, adding Wasserstein would also lose future management fees in that scenario.

The agency argued that one of the central questions, if the pension termination is denied, is: Is it "really believable that these investors would refuse to provide exit financing anyway on the same or different terms?"

In short, PBGC argued, without Majoros' and Lampe's testimony, the court can't adequately decide.

After a sharp decline in profitability in recent years, Harry & David Holdings' earnings were too weak for it to pay its vendors. With default on $200 million worth of bonds looming, the company filed for Chapter 11 bankruptcy protection on March 28.

PBGC filed its response to Harry & David's termination request on June 7 and added to its position on July 13. The following two days, Harry & David dumped 11,000 pages of new documents in the court hopper, resulting in the hearing being postponed to Aug. 1.

PBGC said the gourmet food and gift company has neither sufficiently explored alternatives to termination of its pension plan nor shown that maintaining the plan would be unaffordable.

"The court should be skeptical of Harry & David's argument that, on the one hand, Wasserstein and Lampe Conway are requiring termination of the pension plan and are the only source of financing available to Harry & David, while, on the other, neither Majoros nor Lampe is available for trial," PBGC said in the filing.

Reach reporter Greg Stiles at 541-776-4463 or email business@mailtribune.com.

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