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 user 2008-11-10 at 10:06:54 am Views: 41
  • #20469
    Circuit City files for bankruptcy protection
    Circuit City seeks Chapt. 11 protection amid pressure from vendors ahead of the holidays
    YORK  — Circuit City Stores Inc., the nation’s second-biggest
    electronics retailer, filed for bankruptcy protection on Monday but
    plans to stay open for business as the busy holiday shopping season
    approaches.It filed under Chapter 11 of the bankruptcy code, which will
    allow it to hold off creditors and continue operations while it
    develops a reorganization plan.The Richmond, Va.-based company has been
    struggling as nervous consumers spend less and credit has become
    tighter, and the retail industry overall is facing what’s expected to
    be the weakest holiday season in decades.

    Circuit City also said
    it would cut 700 more jobs, after announcing a week ago that it would
    close 20 percent of its stores and lay off thousands of workers.”This
    isn’t a surprise,” JPMorgan analyst Christopher Horvers said, adding
    that the reorganization could help the company get out of leases for
    certain bad store locations.

    Circuit City, which has had only
    one profitable quarter in the past year, has faced significant declines
    in traffic and heightened competition from rival Best Buy Co. and
    others. It said it decided to file for bankruptcy protection because it
    was facing pressure from vendors who threatened to withhold products
    during the holiday season.”At the end of the day I think it’s really
    about an inventory position,” Horvers said. “If they can get inventory
    into the stores, I can think they’ll remain competitive.”

    company’s biggest creditors are its vendors: Hewlett-Packard has a
    $118.8 million claim followed by Samsung ($115.9 million), Sony ($60
    million), Zenith ($41.2 million), Toshiba ($17.9 million) and others.
    Smaller creditors include GPS navigation system maker Garmin, Nikon,
    Lenovo, Eastman Kodak and Mitsubishi.Horvers added, “I think it’s
    encouraging that they were able to secure financing.” Circuit City said
    it had lined up $1.1 billion in loans to provide working capital while
    it is in bankruptcy protection. That replaces a $1.3 billion
    asset-backed loan it had been using.

    Loans to operate while in
    bankruptcy are called debtor-in-possession, or DIP, loans.”That’s a big
    DIP in the current market,” said John Penn, a partner at Haynes &
    Boone who is not involved in the case. “To secure that size DIP now is
    quite a achievement. With the news of the cuts last week — and vendors
    wanting to know they can get paid — having a recognizable source like
    a DIP can calm a lot of vendor concerns.”

    The company said in
    its filing that it had $3.4 billion in assets and $2.32 billion in
    liabilities, as of Aug. 31.Circuit City Stores Inc. announced a week
    ago it planned to close 155 of its more than 700 U.S. stores by Dec.
    31. The stores are spread throughout 28 states, including multiple
    locations in areas like Phoenix and Atlanta. It is laying off about 17
    percent of its domestic work force, which could affect up to 7,300

    The company also said last week that it will further cut
    back on new store openings and planned to work with landlords to
    renegotiate leases, lower rent or terminate agreements while it dealt
    with tightening credit from its vendors.Circuit City posted a wider
    second-quarter loss in September with a 13 percent decline in sales at
    stores open at least a year. The company has been under new leadership
    since late September when Chief Executive Philip J. Schoonover agreed
    to step down. He was replaced by James A. Marcum, who is now vice
    chairman and acting president and chief executive.Shares in Circuit
    City have traded under $1 for more than a month and the company
    received a warning about that last month from the New York Stock