In a statement, Linens Holding Co., the parent company, alsosaid it was in discussions with an ad hoc committee of holders ofthe notes regarding a restructuring of its capital structure andsaid the lenders were "supportive." Two days later, it announcedthat it had retained the New York City-based investment bankingfirm of Financo Inc., adding it to Conway, Del Genio, Gries &Co., LLC, which had previously been retained as financialadvisor.

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"We are committed to exploring all reasonable avenues in ourefforts to strengthen the company and to adopt a financial solutionthat recognizes the inherent value of the Linens 'n Things'business," says Robert J. DiNicola, chairman and CEO, in astatement. In a published financial update, DiNicola cited "theincreasing deterioration of the credit markets and the residentialreal estate meltdown, both stemming from the turmoil in thesubprime mortgage market, and the resulting downturn in consumerspending, especially in the home sector," which combined to create"acute financial challenges."

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Beyond that, he also referred to "the rapidly increasingfinancial storm outside the company (that), together with ouroperating results, have accelerated credit and insurance problemsfor our vendors, causing them to recently begin imposingsignificantly more restrictive payment terms."

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Calling the current housing situation "the worst housing crisissince the great depression," Howard Davidowitz, chairman ofDavidowitz & Associates Inc., a New York City-based nationalretail consulting and investment banking firm, says homefurnishings is "the worst sector in retail." He lists numerousretailers in the sector that are have either filed for bankruptcyprotection or are closing stores in near record numbers: Bombay,Levitz, Domain, Tuesday Morning, Cost Plus, Kirkland and Pier1.

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He also points to a struggling Restoration Hardware; HomeDepot's declining earnings, and adds, "home is the weakest area atMacy's and Target. Everybody's sick. It's a gigantic mess, andwe're nowhere near half-way through the housing crisis," he says."The value of US homes is down 20% to 25%, which will hold housingdown for a long time."

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At the same time, Davidowitz tells GlobeSt.com, "Bed Bath andBeyond is 1,000 times stronger than Linens' n Things. It's the1,000-pound gorilla, and even it is facing trouble for the firsttime. They're not making their numbers, but they have no debt," hepoints out.

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Under such circumstances, he asks, "is there any reason forLinens' n Things in the marketplace?" He believes the retailer willliquidate, "not instantly," but he gives it a "50/50 chance forsurvival."

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New York city-based Apollo Management LP acquired Linens 'nThings in 2006 for $1.3 billion and took it private. Davidowitzsays, "it they can agree on a bankruptcy deal, they may come outand last for awhile."

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The retailer is seeking to file for a "prepackaged" bankruptcy.Under that form, creditors agree on the restructuring plan prior toa chapter 11 filing. The tactic saves on legal fees. GeneralElectric is among the creditors for a reported $700-million line ofcredit.

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Meanwhile, according to published reports that GlobeSt.com couldnot confirm, Linens 'n Things is contemplating the sale of its 40stores in Canada. "They need to raise cash," Davidowitz notes.

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The sole prospective buyer for the units, according to thereport in the New York Post, is rival Bed Bath & Beyond.Although it has 971 stores in all, compared with approximately 580Linens 'n Things, there is just one Bed Bath & Beyond inCanada.

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The Canadian units may appeal to the larger rival, butDavidowitz sees few if any potential buyers for Linens Holdings.One exception may be Apollo, he speculates. "Bankruptcy helps youde-leverage," he explains. "I think Apollo would like to run itagain (with less debt). If it's not Apollo, I don't see any otherpotential buyer."

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