A bankruptcy judge approved a $500,000 emergency loan yesterday to keep the local chain of Price Busters and Let’s Party Hawaii stores in business, sustaining jobs for 270 employees.

Judge Robert Faris approved the loan subject to small changes that aren’t expected to bar the infusion of capital needed to keep the eight stores on Oahu open. 

The loan is a key piece of a plan to give a partnership between two Hawaii real estate developers — the MacNaughton Group and Kobayashi Group — ownership of the struggling discount retailer that filed for bankruptcy in January.

Jerrold Guben, a bankruptcy attorney representing the retail chain’s parent company, ERT Sales of Hawaii Inc., told Faris the loan offered by MacNaughton and Kobayashi presented a surprising, positive turn for ERT.

Guben said ERT flirted with liquidating all its merchandise in stores before Christmas because October sales, which are crucial because of Halloween, were down 11 percent from the same month last year and $500,000 short of projections.

Though Christmas season merchandise was already mostly in hand, the October shortfall left ERT without money to buy merchandise for the next two major holidays important to ERT — Valentine’s Day and Easter — as well some expenses such as rent.

Word also had gotten out to some suppliers that ERT was on the verge of shutting down, cutting off what little credit ERT had been allowed.

"We simply ran out of money," Guben said. "We had a disastrous Halloween season."

A key to the rescue plan by the MacNaughton-Kobayashi partnership, called Retail Partners Hawaii, was American Savings Bank agreeing to sell an outstanding $2.3 million loan owed by ERT to Retail Partners for an undisclosed discount.

Had ERT been liquidated, it is estimated that the bank would have recovered less than $2.3 million, leaving nothing for junior creditors collectively owed roughly $5 million.

The MacNaughton Group is among those junior creditors with a $104,433 claim for unpaid rent at Kapolei Commons, which the company developed. Price Busters is a tenant at the mall.

Another key part to the rescue plan involves ERT founder and President Beth Tom giving Retail Partners ownership of the company under an asset sale agreement that is close to being presented in Bankruptcy Court for approval by the judge.

If the court approves ERT’s sale to Retail Partners, the acquisition could be completed next month.