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Federated, Allied Placed Under Chapter 11 Bankruptcy Protection

January 15, 1990

CINCINNATI (AP) _ Campeau Corp., owner of many famous American department stores, today placed them under bankruptcy court protection, allowing the debt-swamped chains to operate while attempting to work out their troubles.

The decision to file for Chapter 11 protection was made late Sunday by the boards of Campeau and its Federated Department Stores Inc. and Allied Stores Corp. subsidiaries, which operate 260 stores in the United States, including Bloomingdale’s, Rich’s, Jordan Marsh and Lazarus.

It is the biggest Chapter 11 filing in American retailing history and reflects Campeau’s inability to pay off $8 billion in debt, much of it acquired when the Canadian parent acquired the two U.S. subsidiaries in the mid-1980s.

The filing followed weeks of speculation in the retail trade over how Campeau would deal with the problems of operating its chains while continuing to pay suppliers.

″The decision to seek Chapter 11 relief was based on a conclusion that action was required at this time in order to preserve the operations strength and assets of the two department store companies while the corporate debt is restructured,″ Campeau said in a news release.

Campeau said the filing was made in the U.S. Bankruptcy Court for the Southern District of Ohio, in Cincinnati. Federated and Allied are based in Cincinnati.

Campeau spokeswoman Carol Sanger said U.S. Bankruptcy Judge J. Vincent Aug hadn’t issued any orders about appointment of trustees or set court hearings.

Under a Chapter 11 filing, the companies get a reprieve from creditor bills and can continue operations while reorganizing their finances. But all decisions regarding the companies must be approved by a bankruptcy judge.

Sanger said Federated and Allied would notify suppliers today of the filing.

Toronto-based Campeau, which also owns commercial real estate and shopping malls in the United States, stated that all of its U.S. stores would remain open and the company expected all customer services, such as credit card purchases and merchandise returns, to continue normally.

One of the chains, Lazarus, ran full-page ads in Cincinnati and Columbus newspapers today saying it was conducting ″Business As Usual.″ Maria Kaldis, a clerk at a downtown Columbus Lazarus, said store managers told employees early today about the bankruptcy filing.

″This won’t affect the employees at all. That’s something that doesn’t involve us,″ she said. ″It’s business as usual. Things are going along just like normal, and it’s not affecting customers, either.″

Atlanta-based Rich’s, which has stores in Alabama, Georgia and South Carolina, also notified employees early today about the filing. Spokeswoman Anne Berg said Rich’s planned advertisements to reassure customers on Wednesday.

″The big problem is corporate, not in the stores,″ Ms. Berg said. ″I think the public will understand. The problem is not with Rich’s - we’re solvent.″

In addition to the Chapter 11 filing, the companies announced today they had negotiated further bank financing to cover their current cash needs.

Federated said it had an agreement in principle with a bank syndicate led by Citibank for $400 million in financing, while Allied had a similar agreeement from Chemical bank for $300 million. Both are subject to agreement by the syndicates and approval by the bankruptcy court.

A number of analysts have said a Chapter 11 filing could benefit Federated and Allied, by reassuring suppliers they would get paid if they continued shipping merchandise to the troubled stores.

Suppliers who ship merchandise to the stores after the Chapter 11 filing would take precedence over many other creditors in getting paid.

On Sunday, Campeau had announced it won a five-day reprieve from a group of banks for a deadline today for deciding whether the company was in default on a $2.34 billion loan arrangement.

The banks, lead by Citibank, earlier granted a two-week extension for the troubled Toronto-based company to prove that it was able to repay the loan.

One analyst said the bank move appeared to be in reaction to a decision by Campeau’s board of directors Thursday to split the U.S. retailing units from the parent company and place them under independent trustees and directors.

Under the restructuring announced Thursday, company founder Robert Campeau lost control of the retailing operations. He will continue to run Campeau Corp.’s real estate and development interests, which are based in Toronto.

Also last week, Campeau made a $100 million payment for merchandise shipped to its stores between Thanksgiving and Christmas. There had been speculation that the company could not make the payment on schedule.

Observers said Campeau apparently wanted to keep good relations with its suppliers so they would ship spring merchandise. A decline in sales at the stores due to a merchandise shortage could make the stores less valuable should they be sold to raise cash or as part of a bankruptcy reorganization.

In a joint statement, John W. Burden III, chairman and chief executive of Federated and Allied, and James M. Zimmerman, president and chief operating officer of the companies, said they expected the Chapter 11 filing to have a positive effect on their business by allowing the retailers to concentrate on sales rather than their financial problems.

″At the same time, under Chapter 11 protection, corporate management will have the necessary time to aggressively address the problems that exist at the corporate level with the burdensome capital structure that precipitated today’s actions.″

Campeau already has put Bloomingdale’s up for sale as part of its broad restructuring attempt. Burden and Zimmerman stated the company would continue receiving bids for Bloomingdale’s as part of the Chapter 11 proceedings.

Allied owns the Jordan Marsh, The Bon Marche, Maas Brothers and Stern’s department stores. In addition to Bloomingdale’s, Federated runs the Burdine’s, Lazarus, Abraham & Straus and Rich’s chains.

Campeau also owns Ralphs, a Southern California supermarket chain spun off from Federated. The business was unaffected by the filings.

Campeau said four of its U.S. subsidiaries filed Chapter 11 bankruptcy reorganization petitions Sunday in San Francisco. Campeau identified those subsidiaries as Federated Holdings Inc., Federated Holdings II Inc., Federated Holdings III Inc. and Campeau Corp. California.

Campeau Corp., the Toronto-based parent company, and its principal U.S. holding subsidiary, Campeau Corp. (U.S.) Inc., have not filed Chapter 11 proceedings.

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