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Kmart Bankruptcy

Struggling discount retailer Kmart ended speculation, and filed for bankruptcy protection. The second largest discount retailer in the United States filed for chapter 11 bankruptcy protection, ending speculation about the company’s financial health. Kmart’s filing, the biggest retail bankruptcy ever in the United States, had been widely expected, but company officials had for several weeks declined to comment.

The filing came a day after Fleming Companies Inc., Kmart’s biggest food distributor, halted shipments to Kmart after the retailer failed to make its regular weekly payments. Fleming’s move may have been the last straw for Kmart, which has struggled for months with sluggish sales and strong competition from Wal-Mart Stores Inc. (WMT: up $1.87 to $58.22, Research, Estimates), the No. 1 discounter in terms of annual revenue.

Ratings agencies had downgraded Kmart’s credit, its stock plunged and the company was removed from Standard & Poor’s benchmark index of 500 leading stocks. Kmart’s bankruptcy filing, with $17 billion in assets, is the biggest ever for a U.S. retailer, according to Federated Department Stores Inc. (FD: up $0.52 to $41.03, Research, Estimates), which filed in January 1990, was second with $7.9 billion in assets. Montgomery Ward Holding Corp., which filed in July 1997, was third with $4.9 billion.

Kmart, which has about $37 billion in annual revenue, said it had secured $2 billion in debtor financing to pay its $1.6 billion in debt and expected to emerge from bankruptcy in about a year. A company in Chapter 11 is protected from creditors while it reorganizes and tries to work out a plan to pay its debts. Kmart said all of its 2,114 stores were open for business and that all credit cards, gift certificates and store credits would be honored as usual. It also said its pension and savings plans are independent of the company and would be administered as usual.

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