Gottschalks Inc. (Fresno, Calif.) has given up the fight and filed to reorganize under Chapter 11 bankruptcy protection.
The 58-unit department store chain said it will pursue options that include the possible sale of the company or another transaction. It is seeking permission to conduct an auction of the company around March 17, 2009, according to court documents.
Gottschalks had been in negotiations with Everbright Development Overseas Ltd., a Chinese trading company, to invest up to $30 million in exchange for a stake in the company. It had also reportedly been talking to another party – likely El Corte Ingles (Madrid), Spain’s largest department store organization – seeking investment capital to help it stay afloat. El Corte Ingles already owns about 16 percent of the California-based chain. Both options appear to have disappeared.
To fund its continuing operations during the reorganization process, Gottschalks has negotiated a $125 million debtor-in-possession financing from a group of lenders led by GE Capital. Subject to court approval, Gottschalks will use the credit facility to fund its working capital requirements, including employee wages and benefits, certain vendor payments and other operating expenses during the reorganization process. The retailer anticipates that the DIP credit facility will be sufficient to carry it through the reorganization process. According to chairman and ceo Jim Famalette, the 104-year-old retailer will conduct business as usual during the bankruptcy process.
“This was a very difficult, but necessary decision,” Famalette said. “However, we want to assure our employees and loyal customers that Gottschalks will be conducting business as usual. Gottschalks is very proud of its 104-year heritage and our culture as the 'hometown store' serving the communities where our stores operate. While we have aggressively pursued a number of important steps over the past year to improve our performance and reduce costs, the persistent challenges in the economy and recent unexpected reductions to our borrowing capacity as a result of tightening credit markets have left us with no other recourse than to pursue a sale of the company under court approval in a Chapter 11 proceeding.”