VENDORS SELLING KMART CANADA RECEIVABLES

Byline: Valerie Seckler

NEW YORK — Nervous suppliers to Kmart Canada have been unloading claims to investors over the past week, in what could be a sign of financial troubles at the 126-unit chain.
Executives at BDS Securities and Oppenheimer & Co. here said Tuesday that their firms have been purchasing receivables from Kmart Canada vendors in the low end of the 90-cent range on the dollar.
“There are several fairly nervous vendors, and it has resulted in a few transactions,” said Scott Donahue, senior managing director of sales at BDS. “This is often an early indicator of financial difficulties. The suppliers are looking to protect themselves, instead of waiting for problems to worsen.
“We’ve received a flurry of inquiries from parties looking to sell Kmart Canada receivables over the past week or so, after several months of quiet.”
At Oppenheimer, John Bright, a vice president who trades in distressed claims, said the investment bank has bought some Kmart Canada claims from vendors who were also unloading Eaton’s receivables. Toronto-based Eaton’s filed for bankruptcy protection from its creditors in February.
Bright said, “The recent trading in distressed Canadian claims brought on by the Eaton’s filing gave us an opening to offer some of the smaller vendors who also sell Kmart Canada the chance to sell those claims as well.”
Bright further noted that some factors have scaled back the amount of coverage they will provide to Kmart Canada vendors. “There’s a view that Kmart Canada is weaker than Kmart’s U.S. business, and after all the retail bankruptcies, suppliers are making a bigger effort to limit their exposure.”
The vulture investors noted Kmart Canada is a separate subsidiary of Kmart Corp. and would not be covered by the parent should difficulties worsen. There have been reports that Zellers, the discounter operated by Hudson’s Bay Co., is eyeing Kmart Canada as a takeover target. Zellers and Wal-Mart Canada are each estimated to control 44 percent of Canada’s discount sector.

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