Spiegel Inc. (Downers Grove, Ill.) has said it expects to file for bankruptcy protection in the “near future” unless it can find alternative sources of financing to fund operations.
The catalog retailer and owner of the Eddie Bauer chain has been warning for more than a month that it's running out of cash, said it missed performance requirements tied to its ailing credit card business and must divert substantially all the cash flow to repay investors.
Because of the high incidence of charge-offs on Spiegel's credit cards for unpaid bills, the company has been forced to pay back investors who bought securities backed by its credit card receivables. As a result, the company said in a statement, it won't have cash to fund its Eddie Bauer, Spiegel Catalog and Newport News retail units.
Last week, U.S. securities regulators accused Spiegel of failing to make public its auditor's concerns about the company's future. Then, banking regulators ordered Spiegel to stop accepting charges on Visa and MasterCard credit cards issued through the company's First Consumers National Bank (FCNB) division, which is being liquidated. So Spiegel has said its stores will stop accepting private-label credit cards issued by FCNB, though those had made up 41 percent of Spiegel's 2001 revenues (according to a recent filing with the Securities and Exchange Commission).
Money from its credit card operations had been a “principal source of liquidity, ” Spiegel said in today's statement. “If the Spiegel Group is unable to find alternative sources of financing, it would expect to file for protection under Chapter 11 of the U.S. Bankruptcy Code in the near future,'' the company said.