Campeau Units to Pay Bills but Are Still Shaky
Campeau Corp. passed an important financial test Wednesday, but its two troubled department store divisions came under mounting pressure to file a landmark bankruptcy case.
The company’s Allied Stores and Federated Department Stores operations gave some comfort to the battered apparel industry and other retail suppliers when they announced that they were paying bills that had come due for roughly $100 million in Christmas merchandise.
Acting to patch up its relations with the financial community, Campeau also appointed a well-respected Marriott Corp. executive, 47-year-old Chance Bahadur, to assume the duties of chief financial officer for its U.S. operations.
Those moves, however, were just “a little positive news for a very bad situation,” said Barbara J. Wedelstaedt, an analyst for Duff & Phelps in Chicago.
To remain in business without going into bankruptcy, analysts said, the Campeau stores would have to assure suppliers and bankers that they can continue paying their bills. But at this point, the analysts said, Allied and Federated lack the financial strength to provide that assurance. Consequently, shipments are being halted.
“There are bare spots showing up in their stores. Now you can see there are some problems going on,” said Corky Newman, president of corporate marketing and licensing for Cherokee Group, a Sunland-based apparel maker.
Many suppliers say they hope that Allied and Federated will go into Chapter 11 because it would allow the department stores to get new financing to stay in business and stabilize their operations while working on a reorganization plan.
“Everybody just wants it settled,” Newman said. “Do it. Get it over with. Everybody has dealt with Chapter 11 before.”
Added Michael Gould, president and chief executive of Giorgio Beverly Hills, which has supplied fragrances to Campeau stores: “Everyone is in a state of limbo. Once you know what’s going on, you can ship again.”
Gould called a Chapter 11 filing for Allied and Federated “inevitable.”
“There’s no way out of this,” Gould said. “It would be something near impossible for them to delay this.”
Apparel industry sources said buyers for Campeau stores who were in New York for this year’s “market week,” where apparel manufacturers meet with retailers, were called back to their stores for staff meetings early today. No details of what would be discussed were disclosed.
Some industry observers, however, saw hope in Wednesday’s moves by Campeau for a last-ditch effort by Campeau officials to avert a bankruptcy filing.
“If in fact vendors were paid, it certainly sends a signal that some form of a plan is being worked out to prevent the company from going into bankruptcy,” said Gilbert W. Harrison, chairman of Financo, a New York investment banking firm that specializes in the retailing industry.
“If I were going into bankruptcy, I wouldn’t pay anybody,” Harrison said.
Other retail industry sources suggested, however, that Allied and Federated made their latest payments to stay on good terms with important suppliers. If these suppliers turned against Allied and Federated, the stores would be even harder pressed to buy merchandise.
Although paying bills due this week was considered an important test for the Campeau stores, a more crucial deadline arrives Monday. A lending syndicate led by New York’s Citibank has said it may call in $2.34 billion in loans on Monday if certain financial conditions are not met by Federated and Allied. With cash apparently running low for Federated and Allied, the divisions are expected to file for Chapter 11 protection by then if the banks do not grant another extension.
All the same, analysts were encouraged by the appointment of Bahadur, who most recently was Marriott Corp.’s treasurer and a senior vice president. Before that, he was a vice president and treasurer of E-II Holdings Inc. and Beatrice Co. from 1984 to 1988.
Wedelstaedt said Bahadur is considered a first-rate finance executive who will give the Campeau operations renewed credibility in dealing with its lenders.
Meanwhile, at market week in New York, the mood was unusually grim. Many Seventh Avenue designers, forced by their financial middlemen to halt their business with Allied and Federated, were anxiously awaiting word concerning the stores.
The joke among the manufacturers and retailers, Newman said, was that “the only difference between Seventh Avenue and the Titanic is that the Titanic had a piano.”
Although Toronto-based Campeau has the second-largest department store organization in the United States, there are no Allied or Federated outlets in Southern California. Its only retail business here is the Ralphs supermarkets chain, which is not expected to be included in any bankruptcy filing.
Over much of the country, however, Campeau is a major power in retailing with such prominent chains as Bloomingdale’s, Abraham & Strauss, Burdines, Jordan Marsh and the Bon Marche.
