Early Steps Raise Guarded Optimism For Kmart29 Jan, 2002 By: Hive News
Kmart Corp. took its first steps in the long climb back to stability this week, as some suppliers resumed shipments and a bankruptcy court judge approved part of a $2 billion private bailout.
"Although it is just the beginning of what will be a long road for Kmart, we accomplished a great deal during the first week of our reorganization," said CEO Charles C. Conaway. "We are pleased with the prompt approval by the court of our 'first day motions,' which, taken together, will enable the company to operate without interruption and meet normal business obligations. Moreover, the commitments we have received from the vendor community have allowed us to remain focused on serving customers, a top priority during the restructuring process."
Among the noteable vendors, rack jobber Handleman Co., designated a "critical vendor"to Kmart, announced it has resumed shipping music product to all Kmart stores. Handleman expects its prepetition accounts receivable balance of about $60 million to be paid according to previously arranged terms, including a first payment this week, a Handleman spokesman said.
Kmart owes Handleman subsidiary Anchor Bay Entertainment about $3.5 million , for which Anchor Bay will submit a claim as an unsecured creditor. Both Handleman and Anchor Bay Entertainment are shipping to Kmart under terms and conditions that were in place before the bankruptcy filing.
"We are pleased with the progress that has been made by Kmart and the bankruptcy court this past week," Handleman chairman and CEO Stephen Strome said. "We are working closely with Kmart to continue promoting music product, which has been increasing steadily over the past several years, in all of their stores."
Kmart and 37 of its U.S. subsidiaries filed Chapter 11 bankruptcy papers Jan. 22 in the U.S. Bankruptcy Court for the Northern District of Illinois.
Among the measures the court approved are interim approval for $1.15 billion of a new $2 billion debtor-in-possession (DIP) credit facility, which lets the chain pay employee wages and benefits. It also granted permission to reject unexpired property leases and approved procedures for rejecting other unexpired leases, covering a total of approximately 350 previously closed stores. The move is exoected to free Kmart of about $250 in obligations.
To support the resumption of normal trade terms, Kmart sought and has received permission from its bank group to provide a second lien on the company's assets to those vendors who resume normal terms with the company within the first 60 days of the reorganization.
"We are extremely grateful for the overwhelming support we've received in the past week from customers, our vendor partners and associates," Conaway continued. "Judging from the calls, e-mails and letters we've been receiving, it is clear that there are a lot of people who love Kmart and are willing to go the extra mile to help make sure we come through this process a stronger and healthier company."
A hearing for final approval of the full facility is scheduled for March 6..