No Late Note for Kmart

A bankruptcy court judge has rejected a motion by Kmart Corp. (Troy, Mich.) to extend the time the discount retailer has to market and sell a number of leases for stores slated to close this year.

The judge from the U.S. Bankruptcy Court for the Northern District of Illinois said she lacked the authority to approve Kmart's motion to extend to Nov. 25, 2003, the deadline to dispose of 303 leases.

But she said that even if she did have authority, she believed Kmart “did not meet its burden” to demonstrate why the deadline should be extended.

The bankrupt discount mass-merchandiser had wanted an extra 270 days after its reorganization plan is approved by the court, arguing that the leases were in 44 states and were in different retail settings and real-estate markets, making disposition of them difficult. Kmart also said it needed the time to maximize the value of the leases for its creditors.

Many of the landlords had objected to the extension, saying they wanted to move faster to lease out vacant space, particularly in shopping centers that can hurt other retailers by decreasing foot traffic through the malls.

Kmart's deadline to accept or reject its current leases with landlords is essentially the approval date of the reorganization plan, which is slated to be discussed and ruled upon at a confirmation hearing starting April 14. If there is a change in the anticipated confirmation date of its plan, then the leaseholders will find out by either May 31 or July 31 what Kmart intends to do with the leases. If a lease is rejected, Kmart stops paying rent, but the landlord can file a claim for damages.

The leases are part of a plan to close 316 stores in 2003. This second round of closings follows the 283 stores shuttered in 2002. Once Kmart emerges from bankruptcy court expected by the end of next month it will have pared down its operations to about 1500 stores from the 2100 it had when it filed for Chapter 11 protection in January 2002.