MGR’S DRAFT OF PLAN PROMPTS MORE CONCERN ABOUT FUTURE
Byline: Carol Emert
WASHINGTON — Amid rising concerns of a liquidation, Merry-Go-Round Enterprises began circulating Tuesday a draft of a new reorganization plan to take the company out of its two-year-old bankruptcy.
However, it’s been greeted coolly by some of the chain’s stakeholders. “It’s a nonsense plan,” said one source close to the proceedings who requested anonymity. “It has an absurd capital structure — too much debt, not enough stores, not enough income. It’s not feasible.” “Eventually, they will unhook the patient from the respirator,” said another source close to the bankruptcy.
A Merry-Go-Round spokesman described the talk of liquidation as “market rumors. We don’t comment on market rumors.”
Merry-Go-Round filed for Chapter 11 protection in January 1994. Since then, the chain has downsized to 536 stores from more than 1,400. An earlier plan, filed in February 1995, was thrown out because of changes in the size of the company as well as an inability to meet performance goals.
Just before Christmas, Merry-Go-Round eliminated one of its major chains, Chess King, leaving Merry-Go-Round, which caters to trendy teenage men and women; Cignal, which sells fashion women’s apparel, and Dejaiz, which caters to fashion-forward young men.
Merry-Go-Round, based in Joppa, Md., did not return telephone calls requesting comment on the draft plan Tuesday.
Reportedly, Merry-Go-Round is trying to drum up support for the blueprint this week among its shareholders and unsecured creditors. Next Wednesday is the end of a “stand-still” period during which the company’s stakeholders had agreed not to take any major actions in the case, such as filing an independent reorganization plan or a motion to liquidate.
Shareholders and creditors had agreed to the stand-still period last September to give chief executive officer Richard Crystal a chance to turn the firm around. Crystal took over at the helm of Merry-Go-Round last July.
Merry-Go-Round’s status grew more uncertain last week when Fidelity Investments, the Boston-based investment firm that owns a large stake in Merry-Go-Round, announced that it would discontinue trading in distressed companies.
Executives who had been closely involved in MGR resigned from Fidelity, and it remains uncertain whether they will continue to control the fund that owns the Merry-Go-Round stake, Belmont Capital Partners II. A Fidelity spokeswoman declined to comment.
A MGR spokesman said Monday that MGR has received an extension on a $7.5 million Fidelity loan that had been due Jan. 17. Negotiations for future financing are ongoing, he said.