Another Retailer Leads Bankruptcy Brigade

New filers this week include S&K Famous Brands and Crescent Oil, with Idearc and R.H. Donnelly expected to follow shortly.
Stephen TaubFebruary 10, 2009

Several more companies either filed for bankruptcy on Monday or were publicly identified as likely candidates.

S&K Famous Brands, which operates 136 menswear stores, became the latest among a long string of retailers to file for Chapter 11 in the past year or so. The company listed assets and debt of $10 million to $50 million each in bankruptcy court documents, according to a Bloomberg report.

In the filing, Richard H. Hardy Jr., vice president of finance and information technology, reportedly said S&K entered court protection “to restore positive financial performance and continue its turnaround efforts.”

According to the report, S&K plans to borrow as much as $13 million from Wells Fargo Retail Finance LLC. The financing is needed “to secure continued shipment of goods, pay employees and maintain operation of its business as it restructures,” Hardy said in the court papers. Bloomberg noted the company owes about $7.5 million under a pre-bankruptcy secured loan.

Elsewhere, fuel supplier Crescent Oil Co. Inc. filed for bankruptcy, citing volatile fuel prices and expenses tied to opening new convenience stores.

In court documents, the company, which serves six Midwest states, said it and its subsidiaries had a total of $85.3 million in assets and $88.8 million in liabilities, according to the Associated Press.

The company reportedly said in the documents that it racked up $12.8 million in estimated losses last year and $3.5 million in 2007. It blamed 2008 losses on “extremely volatile fuel prices and margins,” as well as more than $2 million in losses from acquiring and developing new convenience stores. The company also cited high interest rates and financing costs.

Meanwhile, Moody’s Investors Service warned that at least two additional companies could soon file for bankruptcy.

The credit rating agency downgraded Idearc Inc.’s Corporate Family Rating to Caa2 and its Probability of Default Rating to Caa3, reflecting concerns that the company may completely restructure its debt to address its “challenged capital structure.”

For the same reason, Moody’s also downgraded R.H. Donnelley’s Corporate Family Rating to Caa1 and its Probability of Default Rating to Caa2. The latter rating, in particular, “reflects Moody’s concern that a pre-packaged bankruptcy, distressed exchange and/or other restructuring measures likely represent the optimal solution to re-align the company’s over-leveraged balance sheet,” and that market conditions may now be ripe for the same.

Moody’s conceded that it previously felt the company likely would continue the scope of its recent debt repurchase activities to effect a reduced debt profile and improved credit metrics. “A pre-emptive restructuring now seems to be a more viable alternative given current market conditions, which are expected to facilitate a more expedient solution to alleviate the company’s financial strain,” Moody’s wrote.

On the bright side of the bankruptcy spectrum, Heartland Automotive Services, the U.S. franchisee of Jiffy Lube International, said it has emerged from bankruptcy, Reuters reported. The company operates almost 400 quick oil change stores through the United States.