Payless ShoeSource Inc. settled a dispute with its creditors yesterday, after creditors alleged that the company's private equity owners inappropriately siphoned off $400 million before the U.S. retailer's bankruptcy, Reuters reported. The case has been monitored closely by other private equity-owned companies and their creditors, because it could spark more claims against bankrupt companies over dividend recapitalizations, which involve a company borrowing money so it can pay the buyout firms which own it a special dividend. Payless' creditors had said in court filings that private equity firms Golden Gate Capital and Blum Capital, which together hold 98.5 percent of the company and control its board, received more than $400 million in dividends in recent years. Under the settlement, the shoe chain's unsecured creditors, largely its landlords and vendors, will receive $25 million in cash in the bankruptcy reorganization.
