Campeau Corp. Preparing to Seek Bankruptcy Protection
Campeau Corp. officials prepared Friday to file a landmark bankruptcy case that would rank as one of the most dramatic business collapses in American history.
One day after the Toronto-based company announced a major revamping, a source familiar with Campeau’s plans confirmed that the overhaul was largely intended as a prelude to seeking bankruptcy court protection for its U.S. department store chains. The source would not rule out the possibility of a solution to Campeau’s problems outside of bankruptcy, but suggested that little hope remained for such a rescue.
A Chapter 11 bankruptcy filing would provide time for Campeau’s Federated Department Stores and Allied Stores divisions--which together are the nation’s second-largest department store group--to stay in business and reorganize without interference from creditors. Federal bankruptcy law also provides incentives for lenders to provide new credit to companies in Chapter 11 proceedings.
Many apparel makers and others that have cut off shipments to Campeau because of the chains’ financial problems have suggested that Chapter 11 would be the best way for the retail outlets to gain financing to buy desperately needed merchandise. As the situation now stands, the stores are in danger of having half-empty shelves this spring.
Another source, a financier who has worked with Campeau, said the company’s ongoing bank negotiations focused Friday exclusively on what is known as debtor-in-possession financing--the type of loans extended to companies in bankruptcy. Campeau officials “want to be in a ready position,” the source said.
Federated and Allied have said they face a Monday deadline for meeting demands imposed by a Citibank-led lending syndicate that is owed $2.34 billion by the department stores. The financier said the banks mainly are interested in finding out who will be brought in to run Federated and Allied and what their plans are.
He added that bankers were disappointed with the overhaul announced late Thursday by Campeau, particularly in that it appeared to show that Toronto’s Reichmann brothers were backing away from the situation. Banks have regarded the Reichmanns, the hugely wealthy owners of Olympia & York Developments, as possible rescuers of Federated and Allied. By virtue of extending a $250-million bailout loan last September, they own or have the right to buy 38.4% of the parent company’s stock, the biggest stake in Campeau.
Nevertheless, the source said, bankers might waive the Monday deadline to leave open the chance of working out a new lending agreement for Campeau. Observers said what may be tougher deadlines will come later this month, by which time Campeau needs to make new payments to bond holders and order spring merchandise.
The overhaul announced Thursday officially stripped Robert Campeau, the 66-year-old former factory worker who founded Campeau Corp., of all of his authority over the company’s U.S. retailing operations. The plan would further insulate the U.S. holdings from Campeau headquarters in Toronto by putting the retail operations in a trust that would be run by a new U.S. board of directors and a five-person senior management team.
Sources said Campeau is in serious negotiations with a prominent person with a background in politics, law and business to serve as the chairman of the U.S. operations. The company also is courting Allen I. Questrom, the chief executive of Neiman Marcus stores as well as a one-time head of Bullock’s and a former Federated vice chairman, to assume the chairmanship of Federated and Allied. He would replace John Burden, the current Federated/Allied chairman, who is expected to resign shortly.
Barbara J. Wedelstaedt, an analyst who follows Campeau for the Chicago brokerage firm Duff & Phelps, said the company’s plan creates a U.S. organization that could qualify for protection under U.S. bankruptcy law. She said that was an important move because Canadian law has no equivalent to a Chapter 11 reorganization; in Canada, companies that go into bankruptcy are forced to liquidate.
Wedelstaedt added that the establishment of a U.S. management team was intended to assure lenders and suppliers that the company will make a good faith effort in Chapter 11 to turn itself around financially. “They want to make sure that they do this in the cleanest way possible.”
In another sign that Campeau was preparing for bankruptcy, representatives of bond holders said that the company had cut off talks with them. Campeau had been trying since the fall to buy back much of its $2.5 billion in junk bonds to reduce interest payments.
“They’ve been inner-directed in the last couple of days,” said Wilbur Ross, a senior managing director at Rothschild Inc., which represents some major Federated bond holders.
Ross said at this point, a Chapter 11 filing would have few of the customary drawbacks for Federated and Allied. He explained that customers, employees and suppliers already are worried about the fate of the company and added that the divisions’ bonds already are trading at bankruptcy levels.
“Customers wouldn’t notice it if they were in Chapter 11, any more than Eastern Airlines passengers notice if the airline is in Chapter 11,” Ross said.
“What customers will notice is if spring goods get to the store, and I’m more worried about that.”
Campeau’s only retail operation in Southern California is the 143-store Ralphs supermarkets chain, an independent subsidiary that is considered in good shape financially. Over much of the country, however, Campeau is a major power in merchandising with such prominent chains as Bloomingdale’s, Abraham & Strauss, Burdines, Jordan Marsh and the Bon Marche.
The department store organization employs more than 100,000 workers, accounts for an estimated 3% of the nation’s general merchandise sales and is a major customer for Los Angeles’ big apparel manufacturing industry.
