Catalog Retailer Spiegel Seeks Chapter 11 Protection

From Reuters

Spiegel Inc., parent of the Eddie Bauer chain, filed for bankruptcy protection Monday as it tries to recover from problems in its credit card business, which analysts said extended credit to higher-risk customers to drive retail sales.

Spiegel, which has been trying to sell the credit card unit since last year, said it has secured a $400-million debtor-in-possession financing package to keep operating all its businesses during its restructuring.

Spiegel, which was the first catalog retailer to offer its customers credit and is the publisher of the Spiegel and Newport News catalogs, said March 11 that it missed performance requirements tied to its credit card business and was forced to divert substantially all the cash flow to repay investors. It warned at the time that it might have to file for bankruptcy protection if it was unable to find other sources of financing.

The retailer's credit cards did not meet the performance requirements because of lower sales and more charge-offs for unpaid credit card bills. That triggered a "pay event," meaning Spiegel was forced to pay back investors who bought securities backed by its credit card receivables.

"The company chased questionable credit risk customers with its credit card business and suffered the results," said Martin Zohn, a partner in the bankruptcy law practice at Proskauer Rose in New York.

With customers no longer able to use Spiegel's credit cards, sales will suffer further, Spiegel said, adding that it is seeking a third party to finance and service receivables generated for new credit cards for its subsidiaries.

Aside from problems with its credit card business, Spiegel also has had trouble making itself stand out in the retail marketplace, said Kurt Barnard, president of Barnard's Retail Consulting Group. Barnard said he expected that the company would sell Eddie Bauer, the retail chain specializing in outdoor apparel that Spiegel acquired in the late 1980s.

"Eddie Bauer is one heck of a great name, far more than Spiegel itself," Barnard said. "Spiegel was at one time a very good name, but it lost all its luster."

William Kosturos, the chief restructuring officer and interim chief executive Spiegel hired in February, said he was "not ruling out anything right now" when asked about possibly selling Eddie Bauer.

"We're certainly going to look at the Eddie Bauer business and see what improvements we can make in the business," Kosturos said.

Kosturos said it was too early to say whether the company would close any stores. He said he expected the reorganization to take six to 12 months.

Spiegel was founded by Joseph Spiegel in 1865, according to Hoover's Web site of company profiles. In 1905, Spiegel began offering mail-order sales to customers in rural areas.

The company was the first to use photographs in catalogs, publish a Christmas catalog and offer credit, a service that was the main force behind Spiegel's mail-order business.

In addition to Eddie Bauer, Spiegel owns Newport News, a direct marketer of moderately priced women's clothing and home decorations.

Spiegel and its 19 subsidiaries that filed for Chapter 11 bankruptcy protection listed total assets with a book value of $1.737 billion and total liabilities of $1.706 billion as of Feb. 22, the company said.

Spiegel recently settled a civil lawsuit filed by the Securities and Exchange Commission, in which it was accused of failing to make public in 2002 its auditor's concerns about the company's future. Spiegel settled without admitting or denying guilt.

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