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Capricorn-backed cookie company crumbles

The private equity-backed company, Mrs Fields Famous Brands, plans to file for Chapter 11 as declining consumer spending in the US takes its toll. The shopping mall-centred company's Mrs Fields and TCBY franchise stores have suffered closures since 2004.

Capricorn Investors-backed Mrs Fields Famous Brands is seeking approval from creditors for its “prepackaged” reorganization plan prior to filing for Chapter 11 bankruptcy protection, according to a US Securities and Exchange Commission filing.

Private equity firm Capricorn acquired Mrs Fields in 1996 and completed add-on acquisitions including frozen-yogurt chain TCBY for $140 million in 2000 as well as Pretzel Time and Great American Cookie. In two transactions in August 2007 and January this year, Pretzel Time and Great American Cookie were sold to NexCen Brands for $110 million.

“We are highly leveraged relative to our cash flow, our liquidity position has been steadily deteriorating and is currently severely restricted,” the company said in a statement. Mrs Fields will be unable to make interest payments due September 15.

The company noted in the SEC filing that aggressive competition and declining visits to shopping malls, where most of its franchise stores are located, were having an adverse impact on performance.

Mrs Fields franchise store closures began at the end of the 2004 fiscal year. The company said additional store closures may take place, while new locations may be unable to open as planned.

“The company believes that the restructuring will reduce uncertainty with respect to its future and better position it to develop and maintain new customers,” the company said in the filing. Capricorn's second and third investment funds are affected by the bankruptcy.

The slowing economy in the US has driven a number of consumer companies into Chapter 11 protection, including TA Associates-backed clothing retailer Steve & Barry's and Apollo Global Management's Linens 'n Things. Last week, Tom Shapiro, the president of New York-based private equity real estate firm GoldenTree Insite Partners predicted real estate fundamentals such as office and retail rents could weaken further.

“I’m probably more negative than most,” he said, adding: “But I think what we are beginning to see is tenants taking the decision not to expand and to actually give up space they may have previously reserved. I think retail and office rents will come down, and with them prices,” he told PERE.

In July, a report by Colliers CRE said it expected rents for UK high street property to fall between 15 and 20 percent over the next three years, producing some of the worst total returns since 1981.