Dive Brief:
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A trustee of The Limited Creditor's Liquidating Trust is suing the apparel company's former private equity owner Sun Capital Partners with hopes "to avoid and recover" an alleged $42 million fraudulent transfer made by The Limited to affiliates of Sun Capital, according to recent court documents.
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Through the lawsuit, the trustee seeks to recover the funds for the benefit of creditors. "In essence, Sun Capital siphoned whatever value it could from a company that was already struggling for survival, thereby hastening its demise at the expense of unsecured creditors," according to the documents.
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A representative from Sun Capital declined to comment on the story to Retail Dive.
Dive Insight:
The Limited filed for bankruptcy in 2017 and shortly thereafter was sold through a bankruptcy auction to another private equity firm, Sycamore Partners, for $26.8 million. But its toil with financial instability and private equity started much earlier.
"The Limited was a relic of a bygone era, having peaked in the late 1980s," according to the court documents. "From the early 1990s through mid-2000s, the company endured a nearly fifteen-year loss streak and saw over two-thirds of its stores shuttered."
The Limited’s financial struggles mounted after it left the stable of chains operated by former parent L Brands, which sold a 75% stake to Sun Capital in 2007. By 2010, the private equity firm obtained 100% of the ownership interests.
From the perspective of the trustee, Sun Capital then went on to "extract as much value from [The Limited] as it possibly could. To that end, Sun Capital caused [The Limited] — which were managed by Sun Capital pawns — to borrow as much money as possible and exhaust most of their remaining cash to pay a $42 million 'special distribution' to Sun Capital." That amount plus its debt load left the company in financial ruin, the trustee argues.
While The Limited shuttered its remaining 250 stores in 2017, it continues to run an e-commerce business. It sits alongside Sycamore Partner's growing collection of troubled brands, including Coldwater Creek, Hot Topic and Staples.
