Circuit City Files Bankruptcy [Surprise!]

11/10/2008 10:14:00 PM

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circuit_city_logo[5][5] Circuit City's troubles just aren't stopping.  In October CC  according to the Wall Street Journal, was considering plans to shut down stores and layoff thousands in an effort to avoid filing for bankruptcy protection. 

Additionally, CC hired the same firm that oversaw Kmart's Chapter 11 reorganization, as its bankruptcy counsel.  And they had also hired FTI Consulting to help the company devise a turnaround plan.

Then in early November, CC received a warning from the New York Stock Exchange regarding the price of their stock, receiving a "below criteria" warning for CC's $0.26 per share stock price.  If a stock price falls below $1.00 over a 30 day average, a company is warned that their stock will be removed from the exchange, unless in six month they bring the price back up to $1.00 on average over 30 days.

The very next day, CC announced that it was closing 155 stores and laying off thousands.  As a result of CC's dwindling company, suppliers began to demand payment in advance for shipments, or either flat out stopped shipments.

Now, only six days later, CC has filed for Chapter 11 bankruptcy to try to stay ahead of their $898 million debt.  They have arranged $1.1 billion of debtor-in-possession financing from existing lenders led by Bank of America that will allow CC to continue operating under bankruptcy.  But it does require CC to bring that amount down to $900 million by December 29 and use proceeds from its holiday sales to repay other loans outstanding prior to the filing.

The larger problem with this is that if CC does not succeed, landlords of land and spots in malls will be left holding the empty bag due to CC not being able to fulfill their lease obligations.  Under bankruptcy protection a retailer can break a lease with court consent; otherwise, rent is still due on a closed store.


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