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Investment Dealers' Digest

Traxi Hustles Distressed Market

New York Restructuring Advisory Firm is Keeping Busy

October 27, 2008

By Kelly Holman

A few months back, Archway & Mother's Cookies Co. and Sleep Innovations were focused largely on selling cookies and mattresses to customers across America. But, as the slowdown in consumer spending exerted a chokehold on the economy, the two businesses began faltering on the shoals of leverage. Both wound up declaring bankruptcy earlier this month.

Enter Traxi, a boutique advisory firm that the creditors committees of Archway and Sleep Innovations hired to serve as an advisor during Chapter 11 proceedings.

The appointments are but two of the latest assignments the restructuring advisory firm has won over the past year that include companies like Linens 'n Things and Mervyn's.

Perry Mandarino, senior managing director of Traxi, says lack of consumer demand because of the economic downturn is largely to blame for the collapse of retailers like Linens 'n Things, an Apollo Management portfolio company that is liquidating.

"Who would've thought companies like Linens would've shut down?" he says.

The boutique is close to wrapping up the reorganization of Hoop Holdings, a Secaucus, N.J.-based company that filed for bankruptcy in March and does business as Disney Store North America. Hoop, which Mandarino has been advising as its chief restructuring officer (CRO), sold its inventory and 322 stores to The Walt Disney Co.

The workout firm expects to be done with Hoop in mid-December, says Mandarino. "We're winding down the estate and expect to have a substantial dividend for the unsecured creditors."

Traxi has responded to the bankruptcy business blitz it has experienced this year by bolstering its staff, hiring from Bear Stearns, The Blackstone Group and Lazard in September. The hires have boosted its number of professionals to about 20, a long way from the three staffers employed just six years ago. That's when Mandarino, a former partner of Arthur Andersen and managing director of the now-defunct Berenson Minella & Co., joined Traxi. Anthony Pacchia, a former director at distressed investment firm Balfour Investors, established Traxi in 2000.

The most recent and high-profile hire it made came out of the bankruptcy courts. Former US Trustee Kelly Beaudin Stapleton joined less than a month ago to serve as a senior managing director.

As a US Trustee, Stapleton, 40, has overseen a slew of major bankruptcy cases involving companies like W.R. Grace and New Century Financial, and witnessed the overhaul of the US bankruptcy code.

It's a moment Stapleton recalls clearly because her husband suggested they take a trip to Europe shortly before the act's passage in 2005. "I said, 'I can't do it 10 days before implementation.' Everything revolved around the implementation date," she says with a laugh.

Stapleton is working on three restructuring assignments, as well as searching for office space in the corridor between Wilmington, Del., and Philadelphia that will extend Traxi's Mid-Atlantic reach. "It's really important in this time period to capitalize on what's going on in Delaware. So, we think it's important to be down there."

It was in the courts where Stapleton first became acquainted with Mandarino in 2006 when she was overseeing the Chapter 11 proceedings of New Jersey homebuilder Kara Homes. Mandarino was serving as the CRO for Kara when it was disposing of its 33 real estate properties.

The Traxi executive's work on the case so impressed Stapleton that she subsequently appointed him an examiner for Summit Global Logistics this past February, one month after the transportation logistics company filed for Chapter 11.

Summit was acquired for $56.5 million by its management team via a court-approved auction process. Summit, meanwhile, isn't as well known as some businesses Traxi has restructured. In 2003, a US Trustee named Mandarino the examiner for Polaroid's Chapter 11, a case that tested his mettle.

A group of Polaroid shareholders alleged accounting fraud, which didn't turn out to be true, according to Mandarino. "We concluded that the accounting fraud was not there, but that the financial statements looked good."

Given the current climate, Mandarino thinks new business could come from just about anywhere. "I don't think any industry will be immune. I don't view the housing market as rebounding for a good two years, and I don't think the distress has hit the commercial real estate market yet."

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