Byline: Thomas J. Ryan

NEW YORK — General Electric has put a $100 million equity investment into Montgomery Ward in an effort to shore up trade credit for the fall selling season.
A letter was sent out to the factoring community late last week indicating that GE — both the parent and banker of Ward’s — had made a $100 million cash-equity investment into the struggling Chicago-based retailer.
According to one credit source, Roger Goddu, Ward’s chairman and chief executive officer, in the letter wrote: “This cash was used to pay down revolving debt and return our borrowing availability to approximately $150 million.”
Chuck Knittle, Ward’s vice president for corporate communications, confirmed that Ward’s had received a $100 million equity infusion from GE.
“It reflects continued confidence in our remodeling program,” said Knittle. “We’ve remodeled 55 so far, and an additional 23 will be done before the holiday period. We’re thrilled. We think it’s a vote of confidence.” Ward’s now operates 250 stores.
Factors have generally stopped approving Ward’s credit because of fears that GE would move to liquidate the chain. Ward’s has been telling the factoring community for a few weeks that GE was looking to make an equity investment to improve Ward’s credit profile.
Concerns have intensified since Ward’s results in April and May were what one factor described as “dismal,” marked by steep losses. Factors said that like many moderate department store chains, Ward’s is being hurt by competition from Target and Kohl’s. Additionally, like many retailers, particularly in the Midwest, it’s been hurt this past spring by higher gas prices and inclement weather.
In the letter, Ward’s said that although apparel was “difficult” this spring, jewelry, furniture, soft home and electronics have registered good performances.
Despite little trade support, most vendors continue to ship because of the need to maintain volume at Ward, believed to be the largest privately held general merchant, with annual sales of about $3.2 billion.
The lack of factoring support has provided some business for M.J. Whitman, a seller of distressed securities in the form of put options. For a fee of 3 to 5 percent of an invoice, Whitman will guarantee payment upon a bankruptcy filing.
“With GE’s support of Montgomery Ward and its vendors, we’re comfortable with Ward’s for at least the rest of the calendar year,” said Brian Jarmain, Whitman’s managing director.
But despite word of the cash infusion, many factors remain wary of supporting Ward’s, with one calling the $100 million investment a “very small Band-Aid.” Many said it still will take a herculean and costly effort to turn around Ward’s and worry that GE, renowned as a shrewd financial operator, might move to cut its losses by liquidating the chain and selling the leases and assets. They say GE could easily absorb any hit from a Ward’s collapse. Even at $3 billion in sales, Ward’s represents only 2 percent of GE’s total revenues of $110.8 billion last year. GE shocked the investment community in the early Nineties with its liquidation of the Kidder Peabody investment firm.
But some credit sources also believe GE will give Ward’s another shot at turning around to recoup some of the $1 billion it had already invested in the chain over the past three years. GE Capital received 100 percent of the equity of Ward’s as part of Ward’s emergence from bankruptcy in August 1999. In return, GE deposited $650 million in an escrow account for unsecured creditors, equaling a payout of 28 cents per dollar on their claims.
Another impetus for GE’s continued support is Ward’s credit card business, which is run by GE and believed to be highly lucrative.
Finally, while experiencing steep losses, Ward’s has shown noticeable progress at stores they have renovated to a format that’s easier to navigate and shop and not unlike that of Kohl’s. Apparel is expected to be increased to 40 percent of sales from 30 percent previously.
Knittle said the remodeled stores have averaged increases in excess of 20 percent, and a new cash infusion “allows us to continue our aggressive remodeling program. It’s working very, very well.”
Walter Loeb, at Loeb Associates, said the GE cash infusion “reinforces the confidence in the continued viability in the Montgomery Ward formula” and faith in Goddu, who became ceo in January 1997.
“Goddu has done an excellent job in redefining the company. He’s at least redirected it so there’s more viability to it,” said Loeb.

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