The Spiegel Group Monday announced that, in order to address its financial and operational challenges, the company and its principal operating subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York.
Spiegel also announced that the company had secured a $400 million senior secured debtor-in-possession (DIP) financing facility from Bank of America, N.A., Fleet Retail Finance, Inc., and The CIT Group/Business Credit, Inc. Banc of America Securities LLC arranged this financing. This facility will be used to supplement the company’s existing cash flow during the reorganization process. The company anticipates that this financing, together with its current cash reserves and cash flow from its operations, will be sufficient to fund its operations during the reorganization process. The company expects to be able to access $150 million of this facility upon Bankruptcy Court approval of an interim financing order. Access to the full facility is subject to final Bankruptcy Court approval at a later date and satisfaction of certain other conditions.
During this process, the company expects to continue to provide the same high-quality goods and services as it has in the past. All stores and catalog operations are open and serving customers. The company’s gift certificates and merchandise credits will be honored as always and its return and exchange policies will not be affected by the filing. The Spiegel Group companies included in the filing are continuing to pay employee wages and salaries, to offer the same medical, dental, life insurance, disability and other benefits and to accrue vacation time without interruption.
In conjunction with today’s filing, the company filed a variety of “first day motions” to support its associates and vendors, together with its customers and other stakeholders, during this process. The court filings include requests to approve the interim DIP financing and maintain existing cash management programs; to retain legal, financial and other professionals to support the company’s reorganization case; and for other relief. During the restructuring process, vendors, suppliers and other business partners will be paid under normal terms for goods and services provided during the reorganization.
“This filing is an important step in a controlled process that we expect will allow The Spiegel Group to address its immediate liquidity needs, restructure its debt obligations and other financing arrangements and improve its prospects for future growth and profitability,” said William C. Kosturos, chief restructuring officer and interim chief executive officer of The Spiegel Group. “We are grateful for the loyalty and commitment of our associates and the constructive relationships with our vendors and service providers.”
The company’s bank subsidiary, First Consumers National Bank (FCNB), and FCNB’s subsidiary are not part of the filing. The bank is being liquidated under the terms of a preexisting consent order entered into with the Office of the Comptroller of the Currency in May 2002.
As previously disclosed, the company is no longer honoring the private- label credit cards issued by FCNB to customers of Spiegel’s merchant companies (Eddie Bauer, Newport News and Spiegel Catalog). FCNB also recently discontinued charging privileges on all MasterCard and Visa bankcards issued by FCNB to its customers. While the inability of customers to use their private-label cards to make purchases from the merchant companies will adversely affect the company’s net sales, the company cannot yet predict the severity of this decline. In order to enable its merchant companies to issue new private-label credit cards as soon as possible, the company is actively seeking a third-party service provider to finance and service receivables generated from these new cards.
As previously announced, the company appointed William Kosturos, a managing director at Alvarez and Marsal, as interim CEO and chief restructuring officer, effective March 1, 2003. Together with the company’s management team, he will be actively engaged in advising the company on reorganization matters and working to rebuild and reposition the company. The company also has retained Alvarez & Marsal as advisors.
In its filing documents, Spiegel, Inc and its filing subsidiaries listed total assets with a book value of $1.737 billion and total liabilities of $1.706 billion as of February 22, 2003.
