Loehmann's, a US-based designer brand owned by Dubai investment group Istithmar, has filed for bankruptcy in a Manhattan court, its second in a little more than a decade, under a prearranged deal to cut debts by $115 million.

Istithmar and Whippoorwill Associates will invest a combined $25 million in the company once it exits Chapter 11, court papers showed.

Loehmann's stores buy merchandise at below wholesale prices, allowing them to sell designer clothes at lower rates than department or specialty stores.

The already over-leveraged company - which opened in Brooklyn in 1921 and has stores in 16 states selling brands such as Calvin Klein and Diane Von Furstenberg - was hit hard by the recession as its customers cut spending.

Loehmann's contends that its situation was worsened by a 'false' report in the New York Post in April, which said the company had missed an interest payment.

Under the proposed Chapter 11 restructuring, Loehmann's will transfer 51 per cent of its new equity to its creditors and retains about 49 per cent of the company with Istithmar and Whippoorwill.

Whippoorwill is an agent for Loehmann's discretionary funds and accounts, which represent about 70 per cent of its senior secured notes, the company said.

'The recovery to unsecured creditors is not estimated at this time pending the filing of claims by such creditors,' Loehmann's said.

The company, which failed to complete a debt exchange earlier this month, said the restructuring will preserve some 1,900 jobs. It plans to emerge from bankruptcy in the first quarter of 2011.

Crystal Financial, with whom Loehmann's currently has a credit line, will provide a $45 million debtor-in-possession (DIP) loan to the company.

The filing comes just days after the company's lenders agreed to a standstill and gave Loehmann's more time to arrange a restructuring.

In its Chapter 11 petition, Loehmann's said it has both assets and liabilities in the $100-$500 million range. It also listed four affiliates in the filing.

The company had filed for bankruptcy in May 1999 and emerged in October 2000, shedding 25 stores in the process.

Earlier this month, Loehmann's said it planned to close up to 15 stores and a bankruptcy filing would make it easier to break leases.-Reuters