Carter Hawley Hale Stores, crippled by the junk bond debt it took on four years ago to fend off corporate raiders, today sought protection from creditors under Chapter 11 of federal bankruptcy laws.
It was one of the largest bankruptcy cases ever in California.
The Los Angeles-based company, parent of the Broadway-Southern California and the biggest department store organization in the West, now begins the complicated job of trying to get back on its feet. Under Chapter 11, a company is shielded from creditors' lawsuits while it keeps operating and tries to work out its financial problems.
Carter Hawley said that for customers, it will be business as usual at the company's 88 stores. Along with the Broadway-Southern California--the Southland's biggest chain of department stores--Carter Hawley owns the Emporium chain in the San Francisco Bay Area, Weinstocks in the Sacramento area and Phoenix-based Broadway-Southwest.
Carter Hawley's fall, widely expected in recent days as word got out about its financial distress, marks another in a growing list of retailing bankruptcies linked to junk bond-financed buyouts and corporate overhauls. The company also fell victim to the slump in U.S. retail sales over the last two years, and it has been losing customers to its competitors.
In a news release, Philip M. Hawley, the company's chairman and chief executive, said: "It has become increasingly clear that, given Carter Hawley Hale's debt service requirements in today's environment of curtailed consumer spending, accompanied by a contraction in the availability of trade and bank credit, Carter Hawley Hale cannot have the capital resources it needs to be a viable competitor."
To finance its operations under Chapter 11, Carter Hawley secured a commitment from New York-based Chemical Bank for $800 million in financing. Of that total, $550 million will finance its credit card business; the other $250 million is for working capital and other general business purposes.
Among the hardest hit by Carter Hawley's bankruptcy court filing could be many of its 29,000 employees, particularly about 14,000 who have participated in the company's 401(k) savings plan. The plan, designed both to augment employees' pension benefits and to strengthen the company's takeover defenses, holds 45% of Carter Hawley's stock.
As a result of the bankruptcy filing, however, those shares now have only token value. In addition, employees have no other investment holdings through the savings plan; unlike most 401(k) programs, Carter Hawley allowed employees to buy company stock only.
In its news release, Carter Hawley acknowledged the employee stock ownership and said "it is impossible to speculate about what the long-term effect of Chapter 11 will be on the value of the equity of the company."