Watch out for a flood of post-holiday bankruptcy filings by cash-strapped merchants, says a report in Tipd.com.
Several of the industry’s biggest lenders are tightening their lending to retailers – a potential fatal insult when added to the injury of sagging consumer sales.
The wave has already begun:
Circuit City Stores Inc., which filed for Chapter 11 protection in November, advised that it risked liquidation if talks with two parties about a sale or cash infusion, weren’t successful.
Goody’s Family Clothing Inc., Knoxville, Tenn., announced it was liquidating its remaining 287 stores -- just three months after exiting bankruptcy.
Against All Odds USA, a 64-store clothing chain based in New Jersey, revealed it was entering Chapter 11 proceedings in hopes of selling itself or reorganizing.
Lenders such as General Electric Co.’s GE Capital, CIT Group Inc. and Wachovia Corp., are leading the charge in reducing industry exposure to retailers, reported Tipd.com. Capital for stressed retailers to reorganize under bankruptcy-court protection is drying up.
According to Standard & Poor’s, nine U.S. retailers and restaurants, including off-price apparel chain Loehmann’s Holdings Inc., drugstore operator Duane Reade Holdings Inc. and jeweler Finlay Enterprises Inc. are at considerable risk of default -- with junk-bond ratings of CCC, or “very weak.”
A year ago, S&P had six issuers on its list, including three that eventually filed for Chapter 11 protection: Linens ‘N Things Inc., Vicorp Restaurants Inc. and Buffets Inc.
“A lot of retailers survived through the holiday season because they built up their inventories in the summer before anyone, like their vendors, knew it would be this bad. But now you will see a lot of filings,” said Michael Henkin, managing director and co-head of the restructuring group at investment bank Jefferies & Co.
Meanwhile, Loehmann’s and Duane Reade deny they are at risk.
“We have sufficient cash to sustain our operations, and pay the interest on [our] notes,” said Loehmann’s President Robert Glass. “Our parent has put money into the business, and has continued to be very, very supportive.”
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