Spiegel Files for Chapter 11

Throughout 2003, news from The Spiegel Group has been fast and furious—none of it good. The latest: On March 17, the company filed for Chapter 11. Because Spiegel’s legal team is based in New York, as is its Newport News unit, the company chose to file at the Bankruptcy Court for the Southern District of New York.

At the same time, however, Spiegel said it had secured a $400 million debtor-in-possession (DIP) financing facility to supplement the company’s existing cash flow during the reorganization process. Spiegel plans to continue normal operations of its three properties—the Spiegel and Newport News catalogs, and the Eddie Bauer catalogs and stores—during its reorganization.

“I don’t think there is one single reason” Spiegel filed for Chapter 11, says spokesperson Debbie Koopman. “We’ve been faced with the challenges of poor overall economic conditions and the lackluster retail environment after Sept. 11, and we have experienced declining sales and the deterioration of our credit-card receivables. So after exploring all our alternatives, the board and management thought the best thing would be to reduce our debt and restructure other financial arrangements to position ourselves better for the future—which this is all focused on.”

“What needs to be decided is the financial structure of the business going forward,” says Coy Clement, president of East Greenwich, RI-based consultancy ClementDirect. “Both Eddie Bauer and Newport News are significant brands and have value. Fundamentally, Spiegel’s credit-card business is what was bringing them down.”

The question now regards the viability of the ongoing businesses going forward. “Do the businesses in question throw off good cash flow?” Clement asks. “Do the brands have inherent value? Or conversely, does the company determine that the brands are worth more in liquidation than an outright sale to another buyer.”

Koopman says the company hasn’t begun to consider selling any of its properties. “We’ll develop a plan of reorganization,” she says without specifying a time frame. “Then the court has to approve the plan.” Spiegel’s bank subsidiary, First Consumers National Bank (FCNB), and FCNB’s subsidiary are not part of the filing. The bank is being liquidated under the terms of a preexisting consent order entered into with the Office of the Comptroller of the Currency in May 2002.

According to Mal Appelbaum, president of New York-based direct marketing financial advisory firm Appletree Advisors, 85% of companies filing Chapter 11 do not make it out. “And of those that do emerge from Chapter 11, a substantial number of those companies ultimately up being liquidated,” he adds. But in Spiegel’s favor, Appelbaum notes, was its ability to obtain the $400 million financing so that it can continue to operate.

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