By  on January 16, 2012

It’s make or break time for Bud Bergren and The Bon-Ton Stores Inc.

Bergren, chief executive officer of the fatigued York, Pa.-based department store chain, has just over a year to show the retailer can turn around operations before it starts running out of time to refinance $480 million in debt coming due in March 2014. It’s a high-wire act playing out as the company looks for a successor for Bergren, who will step up to chairman once a new ceo is found.

Investors are growing skittish and the picture darkened over the past two weeks as Bon-Ton warned of steep fourth-quarter losses and two credit agencies cut their ratings on its debt.

The price of Bon-Ton’s 2014 bonds fell to as low as 53 cents on the dollar Friday — down from about 64 cents at the start of the year.

Call at least part of that decline the Sears effect. Investors have grown more wary of risky retail issues since factoring giant CIT cut off its vendor financing for Edward Lampert’s Sears Holdings Corp. last week. But there’s more going on than weak market sentiment in the Sears wake.

“We have to do one thing right now and that’s improve our performance,” said Bergren Monday. “We have a lot of things in place that are working right now.”

The great hope of the 276-door chain lies in a series of tweaks to the company’s store in the competitive Lehigh Valley market in Eastern Pennsylvania. The changes were nuts and bolts kinds of things — rejiggering space, expanding the shoe department, adding in a bigger assortment of Calvin Klein merchandise and retraining sales associates, who are now clad in black. Together, the moves turned one of the chain’s weakest stores into one its stronger performers in November and December.

Bon-Ton plans to update the assortment and retrain associates at its other doors by spring and remodel the rest of its stores over the next four years, but the company needs to show real results this year.

“That’s our initiative to improve results in 2012 and once that starts ticking, it will be better at that time to go after and refinance our bonds,” Bergren said. “The downgrade and everything and the refinancing, the debt is not a big problem at all. Basically you need to refinance at least within a year, so we have through [March 2013] to refinance. I’m not at all concerned about that. We’re not concerned at all about our short-term liquidity.”

The market is watching Bon-Ton closely.

“The clock is ticking,” said Rosemary Sisson, high-yield desk strategist focusing on retail debt at Lazard Capital Markets. “You have to see some sort of light at the end of the tunnel to believe that this story changes enough for them to be able to refinance in the market. If they tried to go to market today, they wouldn’t get it done. How do you attract new management to this situation?”

For now, the company can turn to the $569 million available under its credit facility and the support of lenders.

“We’re still extending credit to them, but we’re watching it,” said Gary Wassner, ceo of Hilldun Factors.

Bon-Ton started off the year with a warning, noting that high-margin cold-weather merchandise faltered last month and that full-year losses would range from $1 to $1.30 a share — down from the previous projection spanning earnings of 25 cents to losses of 65 cents. With its regional focus, Bon-Ton is more exposed to northern states than its national competitors and therefore was harder hit by the unseasonably warm weather last month.

Shares of the firm have also taken a hit, slipping 1.3 percent Friday to $3.02, a drop of nearly 30 percent over the past three months. Moody’s Investors Service downgraded Bon-Ton’s credit rating to “Caa1,” while Standard & Poor’s cut its grade on the firm to “B-minus.” Those credit scores are well into “junk” bond territory.

Bon-Ton bought back about $30 million worth of its bonds in November and Bergren said the company could buy more at current prices.

And Bergren said he, as the future chairman, would provide continuity as the company transitions to a new leader.

“I’m not leaving the company,” he said. “I’ve told the board that I’m here for the long run, it’s not a matter of time to find a ceo. We want to make sure we get the right person and I’m going to be the ceo [until then] and I’m still very focused on 2012.”

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