By  on October 27, 2008

Value City Department Stores plans to liquidate following the filing of a voluntary Chapter 11 petition in a Manhattan bankruptcy court over the weekend.

After shutting more than 75 stores since December, Value City has 66 units in the Midwest, mid-Atlantic and Southern U.S. The filing estimates both assets and liabilities of between $100 million and $500 million.

According to an affidavit filed by Stephen Darr, chief financial and accounting officer of the Columbus, Ohio-based retailer, for the seven months ended Aug. 31, the retailer posted sales of $288.5 million and incurred losses of $70 million.

Darr said the discounter has experienced declining sales and profitability over the “last several years.” His affidavit also stated the rough credit markets, as well as a drop in consumer discretionary spending and the tightening of credit terms by Value City’s suppliers and factors, has “decimated” the retailer’s “core market.”

Word of Value City’s decision comes just over a week after Mervyns, the California-based midtier department store, gave up on its plans to reorganize as a going concern and said it would liquidate. Goody’s Family Clothing Inc. emerged from bankruptcy earlier this month and numerous other bankruptcy filers, including Boscov’s and Steve & Barry’s, are attempting to reorganize.

Value City has more than 4,500 employees, with more than 4,000 working as hourly employees, according to the filing.

In January, Retail Ventures Inc. sold 81 percent of its stake in Value City to VCHI Acquisition Co., a consortium that included VCDS Acquisition Holdings LLC, Emerald Capital Management LLC and Crystal Value LLC. Shares of Retail Ventures, which retained its 19 percent stake, closed Monday at $1.35, down 57 cents, or 29.7 percent.

Alan Cohen, a principal of Tiger Capital, which has conducted going-out-of-business sales for Value City, is a principal of Emerald and a director of each of the debtors.

Darr said in his affidavit, “In order to maximize recoveries to parties in interest in these cases, the debtors believe they must seek to continue to close stores and conduct GOB sales. Accordingly, on or shortly after the petition date, the debtors intend to file a motion to assume their prepetition agreements with Tiger to assist the debtors with continuing the GOB sales in substantially all of the debtors’ remaining stores.

“The debtors believe that closing the remaining stores and conducting GOB sales and lease dispositions are the most effective ways to maximize value for their estates and creditors,” the document stated.

The cfo described Value City as a full-line, value-price chain in operation for more than 80 years and carrying men’s, women’s and children’s apparel, accessories, jewelry, shoes, home fashions, electronics and seasonal items. He also said in court papers that the retailer operates in a competitive discount retail market that includes stores such as The TJX Cos. Inc.’s TJ Maxx and Marshalls divisions, Burlington Coat Factory, Big Lots and Kmart.

In addition to the 66 units mentioned in the filing, there are 18 other units that are “dark” with related leases that were marketed to potential assignees prior to Sunday’s Chapter 11 petition.

Value City is seeking court approval of a $40 million debtor-in-possession financing facility with National City Business Credit and Wells Fargo Retail Finance as co-agents to fund ongoing operations.

The creditors holding the largest unsecured claims include: DSW Inc., Columbus, Ohio, $4.5 million; NEJ Wholesale Clothing, Beacon Falls, Conn., $1.4 million; Schottenstein Stores Corp., Columbus, Ohio, $947,885; Lolly Togs Ltd.-French Toast, Dayton, N.J., $906,885; Thor Macomb Mall, New York, $887,724, and Tiger Capital Group, Boston, $648,900. DSW is an affiliate of Retail Ventures.

The retailer opened its doors in Columbus in 1917. It became a public company in June 1991 as a division of Schottenstein. In 2003, it became a wholly owned subsidiary of Retail Ventures, which owns Filene’s Basement in addition to the DSW retail footwear chain. In 2004, Value City merged into VCDS, a new wholly owned subsidiary of RVI.

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