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http://biz.yahoo.com/ap/081110/circuit_city_bankruptcy.html
Circuit City files for bankruptcy protection
Circuit City seeks Chapt. 11 protection amid pressure from vendors ahead of the holidays
NEW
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.”The
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
people.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
Exchange.
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