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Mervyns Bankruptcy Filing Could Be Near

Cash infusion seen unlikely as high-end stores remain unsold.

Mervyns, the $2.5 billion moderate-price regional department store chain, could file for bankruptcy court protection in a matter of days, credit sources said.

There was a possibility last week that the Hayward, Calif.-based retailer might be able to get a cash infusion, but when that failed to materialize, attention shifted to a Chapter 11 filing, the sources said.

The 59-year-old chain has been hurt by the housing implosion in California and the Southwest, and its core customers are being squeezed by rising gas and food prices, job cuts and tight credit.

Bob Carbonell, chief credit officer for Bernard Sands, a credit-checking firm, has been telling his clients to hold orders for the last few weeks. The factoring arm of GMAC Commercial Finance also has stopped approving orders of goods to the chain, which has 177 stores in seven Western states. The factoring division of CIT stopped approving orders for Mervyns in May.

Buyers are said to be having a difficult time getting some goods to the stores. Some vendors are still waiting to get paid for orders shipped, having undertaken the risk themselves after the factors withdrew, credit and market sources said.

The expectation since May has been that the retailer could get breathing room soon from the sale of five to 10 of its more high-end store sites, or at least enough cushion to get through the important back-to-school selling season and into the fall. However, those real estate sales haven’t materialized.

A consortium that included Sun Capital Partners Inc., Cerberus Capital Management LP and Lubert-Adler/Klaff acquired the company from Target Corp. for $1.65 billion in September 2004. Cerberus has since sold its stake in the retail operations, although it still has an ownership interest in the real estate component.

A spokesman for Sun Capital couldn’t be reached for comment.

The Mervyns stores that are up for sale are in desirable, high-end sites that are rapidly becoming upscale and catering to consumers who are more affluent than the retailer’s typical customer profile, credit and real estate sources said.

Mervyns said in May that it hired DJM Realty LLC to sell those stores, and that the transactions were expected to generate “$25 million to $50 million in cash to fund operations and new growth initiatives.”