Bankruptcy Short-circuits Circuit City

This fall's rush of bankruptcy filings by retailers was joined by a big one: Circuit City Stores.

The electronics company, hurt in its perennially competitive industry by an absence of blockbuster new-product offerings, received a $1.1 billion debtor-in-possession revolving credit facility to supplement working capital. The DIP facility replaces the company's $1.3 billion asset-based credit facility and is being provided by the same lenders.

"The facility provides additional immediate liquidity while the company works to reorganize the business and will permit the company to pay vendors and other business partners for goods and services received after the filing," the company said.

Circuit City decided to file under the bankruptcy code's Chapter 11 despite taking certain actions last week to address the company's financial condition and deteriorating liquidity position. It explained that despite these efforts to secure vendor support, vendor concerns about the company's liquidity and ability to pay for its purchases in the current difficult economic climate have escalated considerably since last week's restructuring announcement.

Last Monday it announced plans to close 155 stores, reducing future store openings and aggressively renegotiate certain leases. Then on Friday it reduced its corporate headquarters workforce by 700 positions, which combined with the store closings would result in a combined domestic workforce and store-base reduction of about 20 percent.

In announcing its bankruptcy filing, Circuit City said that Chapter 11 protection will provide vendors with assurances that they will be paid for merchandise so the company can be sufficiently stocked for the holiday selling season. That said, the company pledged to create a restructuring plan that should allow it to emerge as a stronger business with an improved national distribution channel for its vendors and a more compelling offering for its customers.

Circuit City is the latest in a series of retailers filing for bankruptcy this year. They include Value City Department Stores, Linens 'n Things, Sharper Image Corp., Lillian Vernon Corp., Steve & Barry's, Mervyn's, Goody's Family Clothing, and Mrs. Fields' Original Cookies Inc.

Last month, Mrs. Fields and Goody's emerged from brief sojourns in Chapter 11 with a prepackaged bankruptcy plan.