As anticipated by many economists, discount retailer Kmart Corp. filed for Chapter 11 bankruptcy protection today. The Warren, MI-based company also has secured a $2 billion senior secured debtor-in-possession financing facility from Credit Suisse First Boston, Fleet Retail Finance Inc., General Electric Capital Corp. and JPMorgan Chase Bank.
"We are determined to complete our reorganization as quickly and smoothly as possible, while taking full advantage of this chance to make a fresh start and reposition Kmart for the future," Kmart CEO Chuck Conaway said.
The move came a day after Fleming Cos., a major food distributor, said it had cut off most shipments to Kmart because the discounter failed to make its regular weekly payment for deliveries. Fleming said Kmart, its largest customer, owed $78 million.
The giant retailer said it will reorganize on a fast-track basis and hopes to emerge from Chapter 11 in 2003. It added that all 2,114 stores will remain open, and credit cards, gift certificates and store credits will be honored.
Fleming chairman & CEO Mark Hansen said that Kmart's filing helps define the path of their business relationship.
"Kmart's debtor-in-possession financing gives it the critical liquidity needed to fund its operations during the reorganization process, a necessary first step in resuming our relationship," Hansen said. "We believe today's filing provides Kmart the opportunity to better focus company resources on its top performing assets."
The Scotts Co., which last week halted distribution of consumer lawn and garden products to Kmart, said its recent decision to delay shipments is not expected to have an immediate impact on either company's business and the long-term relationship between Scotts and Kmart remains strong.
However, given the seasonal nature of the lawn and garden business, shipments to Kmart in January are typically small. Last year, for example, only about 3% of Scotts' annual shipments to Kmart were made in January. Overall, Kmart typically accounts for about 10% of Scotts' overall net sales.
H. Jason Gold, managing principal of Gold Morrison & Laughlin PC, a Tysons Corner, VA-based bankruptcy, restructure and insolvency law firm, said today's filing may be the first of many attempted reorganizations by large and small retail chains.
"There are indications that those retail firms that were struggling in the slowed economy and that were further impacted by the events of September 11th will be failing," Gold said. "There has been a high level of activity among reorganization professionals who are trying to keep up with all the work."