Kmart Corporation on Wednesday announced that it has received bankruptcy court approval for the $2 billion in exit financing from GE Commercial Finance, Fleet Retail Finance Inc. and Bank of America, N.A.
This credit facility, which will be secured by inventory, would replace the Company’s current $2 billion debtor-in-possession (DIP) facility on the effective date of Kmart’s Plan of Reorganization. The financing is subject to the satisfaction of customary conditions to closing and would be available to Kmart to help meet its ongoing working capital needs, including borrowings for seasonal increases in inventory.
Kmart also received court approval for its plan to close up to 318 stores, as well as a distribution center in Corsicana, Texas. Today, rent concession negotiations were completed on the store located in Mill Hall, PA which will now remain open. A second store, in Chesterfield Township, MI, may remain open pending the outcome of ongoing negotiations for rent reductions. The store closing program is intended to enhance the Company’s financial and operating performance by allowing it to further reduce costs, improve cash flow, streamline distribution and focus its resources more efficiently. Kmart will continue to operate more than 1,500 stores in convenient locations across the United States, the Caribbean and Guam.
The number of closing stores was reduced from the 326 announced on January 14, 2003. As a result of the completion of successful lease negotiations with landlords, nine stores locations, including three Kmart SuperCenters and six Kmart stores, will remain open.
The closing stores will continue to remain open pending completion of inventory clearance sales, which are expected to begin January 30. The store closing process is expected to last approximately 10 to 12 weeks. The distribution center is slated to close in March.
Julian Day, President and Chief Executive Officer of Kmart, said, “We are pleased that key elements of our emergence plan — the $2 billion exit financing, the DIP amendment and the closing of underperforming stores — were approved by the bankruptcy court. While closing underperforming stores is critical to enhancing the Company’s financial and operating performance, we regret the negative impact this action will have on the affected associates, families, customers and communities. We are continuing to move forward on a timetable that would allow Kmart to complete its reorganization and emerge from Chapter 11 by April 30, 2003. We look forward to putting the costs and distractions of bankruptcy behind us so that we can focus on serving our customers in more than 1,500 stores in over 570 markets.”
The Bankruptcy Court also approved an amendment to Kmart’s DIP credit facility that permits the additional store closings and adjusts the covenant pertaining to the Company’s cumulative EBITDA (earnings before interest, taxes, depreciation and amortization) over specified periods to provide the Company with additional flexibility going forward.
