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Federated, Allied Executives Meet to Plan Operations

January 17, 1990

CINCINNATI (AP) _ Top officers of Campeau Corp.’s department store divisions held closed meetings Wednesday to plan how they will to operate under bankruptcy court protection, following signals that they would resist liquidating stores.

Company executives would not comment on how debt-ridden Federated Department Stores Inc. and Allied Stores Corp. might try to reorganize and pay their creditors, although retailing analysts speculated that store sales seemed a foregone conclusion.

″I think they’ll be selling off some assets. They have some great names there and some wonderful stores they could sell,″ said Karen Sack, an analyst for Standard & Poor’s in New York. ″There are a lot of other retail chains around that would like to pick up the retail chains they have.″

Campeau put Federated and Allied, which operate 258 U.S. department stores, under federal bankruptcy court protection from creditors on Monday to give the companies a chance to work stay open while they work out a plan to satisfy creditors.

In their Chapter 11 filing the companies listed some $7.7 billion in liabilities, much of it debt used to finance Campeau’s purchases of Allied in 1986 and Federated in 1988.

″The debt must be significantly reduced. That was the cause of the problem, and that is the only cure,″ said Monroe Greenstein of Bear Stearns. ″The operating company is basically a good sound company, until this huge overhang of debt hit it.″

James M. Zimmerman, president of the Cincinnati-based retailing companies, said Tuesday they planned to resist selling divisions of the company to pay creditors but were going ahead with earlier plans to sell Federated’s 17-store Bloomingdale’s chain.

The retailing chains, whose actual operations had been profitable before the bankruptcy court filing, should be able to operate normally now that they are temporarily relieved of their debt burden, said Jack Seibald of Salomon Brothers.

″The thing that got to them was not the operations,″ Seibald said. ″It was the debt.″

Joseph Chervin, a New York bankruptcy lawyer who is representing some of Federated’s and Allied’s creditors, said those at greatest risk during the bankruptcy court proceedings are investors who bought bonds Campeau sold to finance its venture into American retailing.

The retailing chains’ court filings listed billions of dollars in unsecured debt to bond holders.

″Everybody’s getting paid except the bond holders,″ Chervin said. ″The banks that put money in (after Monday’s filing) are getting taken care of, the suppliers are getting taken care of. The people who are left holding the bag are the bond holders.″

Chervin said he expected Federated and Allied to remain under bankruptcy court supervision for two to three years.

Under Chapter 11, the retailers gain a reprieve from creditors’ claims while they work out a debt-repayment plan. Banks that lent money to the stores after Monday’s filing and companies that supply merchandise after that date will be paid first.

Pre-Chapter 11 creditors will have a chance to vote on whether to accept the retailers’ reorganization plan, which also is subject to approval by the federal bankruptcy court, said Neal Colton, a Philadelphia bankruptcy lawyer.

Colton said bond holders could be asked to accept reduced interest payments or longer repayment periods.

″The difference in a reorganization of this magnitude is that it is unclear whether there will be enough money to pay off everyone who holds debts,″ Colton said.

Documents Campeau filed with the Securities and Exchange Commission earlier this month warned that even the sale of all its store groups might not raise enough money under certain conditions to pay off the outstanding debts.

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