California Economy a Big Problem as ‘Broadway’ Parent Exits Bankruptcy
LOS ANGELES (AP) _ Carter Hawley Hale Stores, driven to bankruptcy court 20 months ago in the onset of California’s recession, emerged from Chapter 11 protection Thursday.
However, the company acknowledged it still faces an uphill fight as it tries to turn a profit during the state’s worst economic crisis since the Depression.
Some 800,000 California jobs have vanished since mid-1990, the Commission on State Finance reported this week. It said defense cutbacks likely will cripple the economy throughout the decade.
That’s bad news for a company with 73 of its 87 stores in California.
Carter Hawley Hale’s chairman, Philip M. Hawley, has been saying the company expects no help from the economy as its Broadway, Emporium and Weinstocks department stores struggle to get back in the black.
The company hopes to make money by adding young customers to its generally middle-aged base.
To bail Carter Hawley Hale out, a fund headed by Chicago investor Sam Zell assumed about a third of its debt, $600 million, and pumped in $50 million in return for 75 percent ownership.
The debt reduction will save $43 million a year in interest payments for the company, which hasn’t turned a profit since filing for bankruptcy.
Using the leverage of protection from creditors, Carter Hawley Hale also renegotiated its financing and many contracts and leases on more favorable terms.
″So we’ve done things to get positioned for a difficult economy, but it’s going to be tough,″ spokesman William E. Dombrowski said Thursday.
Analyst Barbara Wedelstaedt with Chicago-based Duff & Phelps said Carter Hawley Hale’s prospects will depend almost entirely on the fate of the economy.
Carter Hawley Hale’s problems date to a 1987 restructuring in which it loaded up on debt and spun off its specialty stores group, including the glitzy Neiman Marcus, to fend off an unwanted takeover attempt by Limited Inc.
By the time it sought bankruptcy protection in February 1991, it was unable to pay suppliers, much less afford a badly needed modernization of stores. The state unemployment rate was 7.8 percent then; it was 9.4 percent in September.
In emphasizing hotter fashions to attract under-35 customers, the company plans to do more business with Southern California designers.
It also plans to spend $325 million to fix up its many aging stores, starting after the winter holidays.
As part of its reorganization, Carter Hawley has established a three-year, $800 million credit line with General Electric Capital Corp., with long-term financing from The Prudential and Bank of America.
The company also has consolidated, cutting away layers of management and centralizing operations in Los Angeles rather than having separate buyers for each of its chains. The strategy is designed to give it greater leverage with suppliers as well as cut costs.