NEW YORK -- Ames Department Stores is hoping for another coming-out party in 2002.
The bankrupt Rocky Hill, Conn.-based regional discounter has received a proposal from GE Capital in connection with its planned exit from bankruptcy court proceedings.
The retailer and its creditors committee are developing a reorganization plan that would give unsecured creditors equity in the new, restructured firm and have the retailer exit Chapter 11 sometime this year. The proposal includes a junior lien to be provided to vendors that provides trade credit to the company after it emerges from bankruptcy. As reported, the retailer began its second tour of bankruptcy proceedings in August 2001 when it filed a Chapter 11 petition in Manhattan.
The regional discounter met with the committee members Thursday to discuss its progress. Ames told them that it is in compliance with all covenants under its debtor-in-possession financing facility.
In the last several months, according to Ames, it has addressed its problem areas, including the shuttering of 151 stores and one distribution center. Under the current proposal being discussed, Ames's obligations to unsecured creditors will be converted to equity in a reorganized Ames, with shares held by current shareholders extinguished.
According to the company, Joseph R. Ettore, chairman and chief executive officer, told the committee that "Ames has had a successful holiday season in all respects, including sales, gross margins and earnings." As the holiday season dawned, the company reported that its losses for the nine months ended Nov. 3, 2001, mounted to $640.3 million from $88.4 million. Sales declined 13.2 percent, to $2.28 billion from $2.62 billion, and were down 13.8 percent on a same-store basis.
Ames, in hindsight, might have wished that it thought twice before its 1999 acquisition of then-competitor Hills Stores Co., a move that many said pushed the regional retailer into its second tour of bankruptcy proceedings, after having emerged in 1992.
As a move to garner more market share, the company on Dec. 31, 1998, acquired 81.3 percent of the outstanding common stock and 74.4 percent of the outstanding convertible preferred stock of Hills. On the same day, Ames also bought $144.1 million, or 73.9 percent, of the $195 million of outstanding Hills 12.5 percent senior notes due in March 2003. Those notes, valued at $43.6 million, according to bankruptcy court filings, now represent the second largest unsecured claim in the Ames bankruptcy.
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