NEW YORK -- Merry-Go-Round Enterprises filed a Chapter 11 petition to reorganize Tuesday, saying negotiations to restructure its loan agreements had been unsuccessful.
The company said it had $90 million in cash on hand and had arranged for $125 million in debtor-in-possession financing with the CIT Group.
The petition, filed in bankruptcy court in Baltimore, lists liabilities totaling about $265 million and assets at $463 million as of Nov. 27.
The filing had been expected since reports circulated that the company was seeking Chapter 11 financing and had retained a bankruptcy attorney, as reported.
MGR had a third-quarter loss of $38.5 million, which included a $35 million charge for inventory write downs and costs for closing about 80 stores.
Last week, a final attempt to obtain a moratorium on trade debts until next September and avoid a bankruptcy filing was unsuccessful.
Trading in MGR stock was halted on the New York Stock Exchange Tuesday afternoon with shares unchanged at 2 3/8. Trading did not resume.
The company issued a release saying that the Chapter 11 filing would "provide adequate assurances to its vendors to enable them to resume merchandise shipments."
MGR didn't pay trade bills due Dec. 10 and most vendors promptly halted shipments. The company had all the merchandise it needed for Christmas, but was concerned that it would not get sufficient goods for spring as negotiations with its lenders dragged on.
MGR said Tuesday that it was necessary to file for Chapter 11 "in order to protect its valuable franchise and meet its needs for the spring buying season."
Apparel firms generally said they would open up shipments for spring. One executive said that even though the company is in Chapter 11, it still has almost 1,400 stores.
"I am less concerned about ordering fall piece goods for them because there's less risk. No matter what their financial situation, they remain an important market with that number of stores," said the executive.
Factors also are expected to reopen credit for MGR on the basis that the stores actually are a better credit risk now that they are in Chapter 11 with adequate financing available.Peter Schaeffer, a partner at Johnson Redbook Service, said that he expects the company to shut between 20 and 30 percent of its stores, most of which he believes will be in the Chess King division.
"It's not going to be a long bankruptcy period -- they'll probably emerge from Chapter 11 by Christmas," he said.
The most critical problem that needs to be addressed is merchandising, he said, adding, "They've gotten lazy and lost direction." He noted that MGR missed out on trends like flannel and the preppy grunge look. "They need to be more proactive than reactive."
Schaeffer also said that the return of MGR founder Leonard Weinglass in September was not the answer to the company's merchandising problems, noting that the retailer needs to bring in a top merchant to turn around merchandising.
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