CINCINNATI -- Campeau Corp.'s debt-plagued U.S. retail units filed for bankruptcy protection Monday to save some of the nation's most popular stores, including Bloomingdale's and Burdine's, from creditors.
The move will force Campeau's Federated Department Stores Inc. and Allies Stores Corp. to restructure their 10 department store chains.
The Chapter 11 filing in the U.S. Bankruptcy Court for the Southern District of Ohio was widely anticipated by retail insiders and securities analysts after Campeau failed last week to refinance the combined $7 billion debt of Federated and Allied.
The two retail divisions -- which operate 10 department store chains with a total of 258 stores and 100,000 employees -- have been crippled by a cash-flow crisis that had scared some suppliers away.
Under Chapter 11, Federated and Allied -- which run Bloomingdale's, Burdine's, Abraham & Straus, Lazarus, Rich's, Goldsmith's, The Bon Marche, Jordan Marsh, Maas Brothers and Stern's -- will remain in business while restructuring.
While the bankruptcy filing frees the Cincinnati-based retailers from meeting immediate payments to banks and bondholders, it ensures suppliers that obligations made after the filing will be honored.
'The filing was inevitable but the best thing under the circumstances,' said George Hartman, a securities analyst with BBN James Capel in Toronto. 'Now the companies can proceed to work out of a very messy situation.'
Campeau, a Toronto-based real estate development company, bought Federated in 1988 for $6.6 billion and Allied a year earlier for $3.6 billion in transactions that buried the retailers under a mountain of debt. Campeau had indicated last month that it might be forced to seek bankruptcy protection for its retail divisions.
In a message to Allied's and Federated's employees Monday, John W. Burden III, chairman and chief executive officer of Federated and Allied, and James M. Zimmerman, president and chief operating officer of the companies, said, 'Being in Chapter 11 is not a situation to which a company would aspire. Still, there are some advantages that come from such a reorganization.'
The two executives said the filing eliminated months of uncertainty 'that have had a negative impact on our businesses.'
'It allows business to continue as usual. And it establishes a framework for assuring that vendors will be paid for new merchandise,' they said.
The bankruptcy filing, however, places in question some of the payments, totaling $100 million, made by Federated and Allied last week for December merchandise, said Carol Sanger, a Campeau spokeswoman.
'For vendors whose checks did not clear, they become pre-petition creditors of the company for that merchandise,' she said.
Sanger said many suppliers, anticipating a Chapter 11 filing, last week flew to cities where the checks were drawn in order to make sure they cleared.
Marc Zuckerman, treasurer of apparel manufacturer Bernard Chaus Inc. in New York, said the bankruptcy filings would cost his company 'a substantial amount' because checks mailed by Federated and Allied last week had not yet cleared.
'My initial reaction is disappointment because some of the payments made to us January 10 will be frozen,' he said. 'The filing makes any new shipments easier but there is still a question of resolving shipping terms.'
Zuckerman said he would be reluctant to waive customary cash-advance terms.
Federated and Allied said they have negotiated agreements in principle with bankers to provide debtor-in-possession financing that would cover their liquidity needs.
Federated would receive $400 million from a syndicate of banks led by Citibank over a one-year period and Allied would $300 million over 15 months from Chemical Bank. The lines of credit are subject to bankruptcy court approval, the retailers said.
Sanger said Allied and Federated failed to negotiate an extension of a Monday deadline on a solvency test required by a syndicate of banks that had lent the retailers $2.34 billion. But that, alone, did not prompt the bankruptcy filing, she said.
'Obviously, the need to preserve the business and the assets of the company played a significant factor in determining that Chapter 11 was prudent,' she said.
Campeau's previously announced intention to sell Bloomingdale's, the crown jewel of its retail empire, remained unchanged, the company said.
Sanger said the company planned within 'a day or two or three' to announce a new board of directors, as spelled out in a drastic operational restructuring last week that effectively ousted Chairman Robert Campeau from the company's retail operations.
Campeau Corp., a Toronto-based real estate development company, bought Federated in 1988 for $6.6 billion and Allied a year later for $3.6 billion in transactions that buried the retailers under a mountain of debt.
In a message to Allied's and Federated's 100,000 employees Monday, John W. Burden III, chairman and chief executive officer of Federated and Allied, and James M. Zimmerman, president and chief operating officer of the companies, said, 'Being in Chapter 11 is not a situation to which a company would aspire. Still, there are some advantages that come from such a reorganization.'
The two executives said the filing eliminates months of uncertainty 'that have had a negative impact on our businesses.'
While a bankruptcy filing frees the Cincinnati-based retailers from meeting immediate payments to banks and bondholders, it ensures suppliers that obligations made after the filing will be honored.
Retail insiders and securities analysts had viewed bankruptcy as the most likely outcome of Allied's and Federated's cash crunch when last-ditch efforts to restructure the retailers' debts last week proved unsuccessful.
The retailers said they have negotiated agreements in principle with bankers to provide debtor-in-possession financing that would cover their liquidity needs.
Federated would receive $400 million from a syndicate of banks led by Citibank over a one-year period and Allied would $300 million over 15 months from Chemical Bank. The lines of credit are subject to bankruptcy court approval, the retailers said.
Following weeks of uncertainty, Campeau Corp.'s two U.S. retail divisions filed for bankruptcy protection from creditors Monday in a move that will force a restructuring of the companies' 10 prestigious department store chains.
The Chapter 11 filing in the U.S. Bankruptcy Court for the Southern District of Ohio was widely anticipated by retail insiders and securities analysts after Campeau failed last week in its last-ditch efforts to refinance the combined $7 billion debt of Federated Department Stores Inc. and Allied Stores Corp.
The two retail divisions -- which operate 10 department store chains with a total of 258 stores and 100,000 employees -- have been crippled by a cash-flow crisis that had scared some suppliers away.
Under Chapter 11, Federated and Allied -- which run Bloomingdale's, Burdine's, Abraham & Straus, Lazarus, Rich's, Goldsmith's, The Bon Marche, Jordan Marsh, Maas Brothers and Stern's -- will remain in business while restructuring.
While the bankruptcy filing frees the Cincinnati-based retailers from meeting immediate payments to banks and bondholders, it ensures suppliers that obligations made after the filing will be honored.
'The filing was inevitable, but the best thing under the circumstances,' said George Hartman, a securities analyst with BBN James Capel in Toronto. 'Now the companies can proceed to work out of a very messy situation.'
Campeau, a Toronto-based real estate development company that bought Federated in 1988 for $6.6 billion and Allied a year earlier for $3.6 billion in transactions that buried the retailers under a mountain of debt, had indicated last month that it might be forced to seek bankruptcy protection for its retail divisions.
In a message to Allied's and Federated's employees Monday, John W. Burden III, chairman and chief executive officer of Federated and Allied, and James M. Zimmerman, president and chief operating officer of the companies, said, 'Being in Chapter 11 is not a situation to which a company would aspire. Still, there are some advantages that come from such a reorganization.'
The two executives said the filing eliminated months of uncertainty 'that have had a negative impact on our businesses.'
'It allows business to continue as usual. And it establishes a framework for assuring that vendors will be paid for new merchandise,' they said.
The bankruptcy filing, however, places in question some of the payments, totaling $100 million, made by Federated and Allied last week for December merchandise, said Carol Sanger, a Campeau spokeswoman.
'For vendors whose checks did not clear, they become pre-petition creditors of the company for that merchandise,' she said.
Sanger said many suppliers, anticipating a Chapter 11 filing, last week flew to cities where the checks were drawn in order to make sure they cleared. She could not say what was the value of checks that remained outstanding Monday.
Marc Zuckerman, treasurer of apparel manufacturer Bernard Chaus Inc. in New York, said the bankruptcy filings would cost his company 'a substantial amount' because checks mailed by Federated and Allied last week had not yet cleared.
'My initial reaction is disappointment because some of the payments made to us Jan. 10 will be frozen,' he said. 'The filing makes any new shipments easier, but there is still a question of resolving shipping terms.'
Zuckerman said he would be reluctant to waive customary cash-advance terms.
Federated and Allied said they have negotiated agreements in principle with bankers to provide debtor-in-possession financing that would cover their liquidity needs.
Federated would receive $400 million from a syndicate of banks led by Citibank over a one-year period and Allied would $300 million over 15 months from Chemical Bank. The lines of credit are subject to bankruptcy court approval, the retailers said.
Sanger said Allied and Federated failed to negotiate an extension of a Monday deadline on a solvency test required by a syndicate of banks that had lent the retailers $2.34 billion. But that, alone, did not prompt the bankruptcy filing, she said.
'Obviously, the need to preserve the business and the assets of the company played a significant factor in determining that Chapter 11 was prudent,' she said.
Campeau's previously announced intention to sell Bloomingdale's, the crown jewel of its retail empire, remained unchanged, the company said.
Sanger said the company planned within 'a day or two or three' to announce a new board of directors, as spelled out in a drastic operational restructuring last week that effectively ousted Chairman Robert Campeau from the company's retail operations.
The filing, made under Chapter 11 of the U.S. Bankruptcy Code, came after efforts to restructure the retailers' combined $7 billion debt were unsuccessful, Federated and Allied said in a joint press statement.
Allied and Federated had been operating under a cash crunch that left vendors reluctant to ship merchandise to their 10 department store chains for fear the retailers could not meet their obligations.
Under Chapter 11, Federated and Allied -- which operate Bloomingdale's, Burdine's, Abraham & Straus, Lazarus, Rich's, Goldsmith's, The Bon Marche, Jordan Marsh, Maas Brothers and Stern's -- will remain in business while restructuring.NEWLN: more
In a message to Allied's and Federated's 100,000 employees Monday, John W. Burden III, chairman and chief executive officer of Federated and Allied, and James M. Zimmerman, president and chief operating officer of the companies, said, 'Being in Chapter 11 is not a situation to which a company would aspire. Still, there are some advantages that come from such a reorganization.'
The two executives said the filing eliminates months of uncertainty 'that have had a negative impact on our businesses.'
While a bankruptcy filing frees the Cincinnati-based retailers from meeting immediate payments to banks and bondholders, it ensures suppliers that obligations made after the filing will be honored.
Retail insiders and securities analysts had viewed bankruptcy as the most likely outcome of Allied's and Federated's cash crunch when last-ditch efforts to restructure the retailers' debts last week proved unsuccessful.
Campeau, a Toronto-based real estate development company, bought Federated in 1988 for $6.6 billion and Allied a year later for $3.6 billion in transactions that buried the retailers under a mountain of debt.NEWLN: more
The retailers said they have negotiated agreements in principle with bankers to provide debtor-in-possession financing that would cover their liquidity needs.
Federated would receive $400 million from a syndicate of banks led by Citibank over a one-year period and Allied would $300 million over 15 months from Chemical Bank. The lines of credit are subject to bankruptcy court approval, the retailers said.
