(Adds creditor amounts)
By Karen Jacobs
ATLANTA Nov 10 Circuit City Stores Inc (CC.N),
the No. 2 U.S. consumer electronics retailer, filed for
bankruptcy on Monday just weeks before the start of the holiday
shopping season, becoming the largest retailer to file for
Chapter 11 since Kmart in 2002.
Circuit City fell victim to tighter credit terms from
vendors, a dwindling cash position and decreased consumer
spending amid a deepening economic crisis.
The filing comes one week after the 59-year-old retailer
said it would close 155 U.S. stores, or more than one-fifth of
its retail base, and cut 17 percent of its U.S. work force.
The retailer and 17 affiliates filed for protection from
creditors in U.S. bankruptcy court in Richmond, Virginia, where
it is based. Its Canadian operations also filed for creditor
protection in an Ontario court.
Analysts said there was now a possibility the company would
close more U.S. stores as it negotiates to exit costly leases
in Chapter 11.
"Don't rule anything out yet," said Jefferies & Co analyst
Dan Binder. "You could go away, you could restructure to
something smaller, maybe somebody buys the brand and a couple
hundred stores and maybe it ends up a regional player."
The company could face an uphill struggle to reorganize and
emerge from bankruptcy since credit is tight and consumer
spending has plummeted.
"It has a lot to do with the macroeconomic crisis in the
world right now," said Aravindh Vanchesan, program manager for
the retail systems group at consulting firm Frost & Sullivan.
"Right now, customers are cutting back on spending."
U.S. home-goods retailer Linens 'n Things tried to maintain
operations by closing a portion of its stores after its May
Chapter 11 filing, but finally liquidated altogether. Last
week, smaller electronics chain Tweeter filed Chapter 11 and
said it was holding store-closing sales.
In Monday's filing, Chief Financial Officer Bruce Besanko
said the company hoped to secure financing to continue its
turnaround. The company expressed hope it would be able to
emerge from Chapter 11 in the first half of 2009.
"Without immediate relief, the company is concerned that it
will not receive goods for Black Friday and the upcoming
holiday season, which could cause irreparable harm to the
company and its stakeholders," Besanko said.
Besanko's statement said 1,300 workers were laid off on
Nov. 7. That day, the Richmond newspaper reported that hundreds
of workers had been let go from company headquarters.
The Chapter 11 filing caps a tough two years for the
company, which posted losses for five of the past six quarters
and faced a proxy contest from a major shareholder this year.
Movie-rental firm Blockbuster Inc BBI.N withdrew a takeover
bid for Circuit City in July.
The company's stock has swooned 99 percent since January
2007 and now trades at less than 50 cents. The shares were
suspended by the NYSE on Monday.
In recent weeks, suppliers pinched by the global credit
crunch tightened terms, sometimes requiring upfront payment
from Circuit City before shipping goods.
Industry leader Best Buy Co (BBY.N), discounter Wal-Mart
Stores (WMT.N) and regional retailers such as hhgregg (HGG.N)
are expected to benefit from electronics store closures in the
longer term, analysts have said.
But the flood of discounted merchandise from liquidating
Circuit City stores could hurt Best Buy this holiday shopping
season, which is expected to be one of the bleakest in recent
years as consumers grapple with rising unemployment and the
"Longer term, you've got Best Buy, who's dominant in the
sector, taking share. But in the short run it could feel the
pain of the liquidation activity," Binder said.
According to the filing, Circuit City had $3.4 billion of
assets and $2.32 billion of debt as of Aug. 31, and more than
The company has arranged a commitment for
debtor-in-possession financing of $1.1 billion, which will
allow it to continue to operate.
Among the company's largest unsecured creditors are
Hewlett-Packard Co (HPQ.N), which is owed $118.8 million;
Samsung Electronics Co (005930.KS), owed $115.9 million; and
Sony Corp (6758.T), the filing shows. The largest shareholders
include HBK Master Fund LP and First Pacific Advisors LLC,
according to the filing.
Best Buy shares closed down 38 cents, or 1.5 percent, to
$25.21 on the New York Stock Exchange on Monday, and hhgregg
fell 18 cents, or 3.5 percent, to $4.93.
(Additional reporting by Jonathan Stempel, Chelsea Emery and
Martinne Geller in New York; Editing by Steve Orlofsky, Brian
Moss and Matthew Lewis)