Carter Hawley Restructuring to Cost $1.1 Billion

Carter Hawley Hale Stores said Monday that it will need nearly $1.1 billion to cover costs of a restructuring that would split the Los Angeles-based retailer into two companies--one consisting of department stores, such as the Broadway, and the other of specialty stores, including Neiman-Marcus.

In a debt filing with the Securities and Exchange Commission, the company detailed how it expects to finance the restructuring, which was announced last December as the company was in the throes of its second takeover battle in 2 1/2 years with the Limited of Columbus, Ohio. Most of the funds would be used to pay off some existing debt and to make a previously announced $17-a-share payment to stockholders.

Also in the filing, the company disclosed a significant change in terms that would allow shareholders to use that payment to buy more stock in either of the companies.

Under the proposed restructuring, which thwarted the takeover effort by the Limited and an Ohio-based real estate developer, Carter Hawley plans to spin off its specialty store units--Neiman-Marcus, Contempo Casuals and Bergdorf Goodman--into a new, publicly traded company and retain its department store businesses, which include the Broadway-Southern California, the Broadway-Southwest, Thalhimers, Weinstock’s and Emporium Capwell.

The plan, which is subject to a shareholder vote later this summer, calls for the specialty store company to be controlled by General Cinema, a “white knight” investor that rescued Carter Hawley in its 1984 takeover battle with the Limited by buying a large stake in the company. General Cinema, based in Chestnut Hill, Mass., is the nation’s largest independent beverage bottler and a major movie theater operator. It also now holds a majority of Carter Hawley shares.

Under the plan, most Carter Hawley shareholders would receive, in addition to the $17, one share of common stock in the specialty store company for each existing Carter Hawley share, which they also would retain. Employees of the various stores would continue to work for their divisions.

However, in the prospectus, Carter Hawley detailed a change that could affect how shareholders use their payment.

Employees owning shares through company stock plans would be able to boost their ownership of shares in the company for which they would be working by agreeing to accept additional stock in that company instead of cash and shares in the other company. In other words, a department store employee could forgo the $17 cash payment and the specialty-store share and swap that for the equivalent value of stock in the department store company.

Financing Sources

Similarly, public shareholders would be allowed to decrease the cash to be received and increase their holdings in either or both of the companies.

In the debt prospectus, Carter Hawley said it intends to get financing from several sources, including debt offerings of $325 million in notes to be underwritten by Morgan Stanley & Co., its investment banker; $350 million in mortgage financing from Prudential Insurance; a “bridge” loan of $80 million from Bankers Trust, and a so-called working capital loan of $318 million from a group of banks led by Bankers Trust.

Of that total, $631 million will be used to pay off some existing debt, and $343 million will cover the $17-a-share cash payments.

In addition, $85 million will be used to pay estimated fees and expenses, and $14 million will cover costs of securing the mortgage financing.

Moody’s Investors Service assigned a speculative rating of B-2 to the company’s two proposed debt issues--one for $200 million and one for $125 million. The rating agency said the restructuring “will deplete all of Carter Hawley Hale’s equity and will substantially increase leverage.”

In its SEC filing, Carter Hawley said it anticipates “significant charges” to second-quarter earnings as a result of the restructuring. They will result in a net loss for the quarter and six months ended Aug. 1, it added.

A more detailed description of the specialty store company, including its management structure, was not included in Monday’s filing. That is expected to be part of a company proxy statement, which is due to be filed with the SEC in a few weeks.

The company announced last week that June 29 will be the date of record for shareholders to vote on the restructuring. A shareholders meeting must be held within 60 days of that date.

Carter Hawley stock closed unchanged Monday at $65.75 a share on the New York Stock Exchange.