Merry-go-round To Keep Going

January 13, 1994|By Ross Hetrick | Ross Hetrick,Company bankruptcy court filingStaff Writer

Thanks to the blessing yesterday of a federal bankruptcy court judge, Merry-Go-Round Enterprises Inc. will be able to continue business as usual, including the ability to use an estimated $15 million to honor gift certificates and items held on layaway and to redeem returned merchandise.

"It is really important that the judge entered that order," said Brooke Schumm III, the attorney representing five insurance companies that are among Merry-Go-Round's largest creditors. "It's important for Merry-Go-Round's survival."

Yesterday's ruling by U.S. Bankruptcy Judge E. Stephen Derby in Baltimore came one day after the Joppa-based retailer filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code.

Even though the company continues to operate while restructuring its debts, its finances are now under control of the bankruptcy court, and it must receive approval for any transactions.

Merry-Go-Round stock closed yesterday down 87.5 cents a share, at $1.75. It was the sixth-most-active stock on the New York Stock Exchange, with 3.7 million shares changing hands.

The exchange said it would review whether to continue the company's listing because of the bankruptcy filing.

In a set of rulings issued yesterday, Judge Derby also gave Merry-Go-Round the right to pay its $2 million weekly payroll to its 20,000 employees and to continue its method of collecting money from its 1,450 stores. The company employs 1,500 people at its Joppa headquarters and 58 stores in Maryland and Washington.

On Friday, the judge is expected to review the company's proposal for a new $125 million line of credit from the CIT Group in New York.

It was particularly important that Judge Derby approved the ability to honor purchase returns and sales certificates, the company said. Otherwise, the customers could lose faith in the chain, which also operates under the names Attivo, Chess King, Cignal, Dejaiz, Silverman's and Hollywood Store.

"Without the good will of the customers, this company might as well close the doors," said Roger Frankel, a Washington attorney representing Merry-Go-Round.

Mr. Frankel said the company estimated that in the coming year the stores will need $4.9 million to redeem gift certificates, $9.1 million for returned merchandise and $1 million for items on layaway.

Merry-Go-Round, which was founded by the flamboyant Baltimore native Leonard "Boogie" Weinglass in 1968, struggled for nearly a month to find a way to restructure its finances before relenting on Tuesday as it faced the need to obtain financing to buy its spring inventory.

"If we didn't do it now, it would have had a detrimental effect on our stores," said Robert J. Reiners, director of financial management services for Merry-Go-Round. "In our judgment, we were going to do longer-term damage by waiting."

Merry-Go-Round had been labeled a bad credit risk by credit-rating agencies since skipping a Dec. 10 payment to suppliers and factoring companies, which guarantee payments for those purchases. But with the filing, suppliers will be assured of getting paid.

"They are the first loan that gets paid back," said Peter N. Schaeffer, a partner in Johnson Redbook Service, a New York company that follows the retailing industry.

Mr. Schaeffer said it might have been more advantageous for the company to file at the end of December to take advantage of some bankruptcy rules that changed this year. But he said Merry-Go-Round held out as long as possible to try to find another solution.

"They were trying to pull in every chip they could," he said.

Merry-Go-Round sales, which rise and fall largely on the tastes of teen-age boys, were battered last year as the company bet heavily on brightly colored urban "hip-hop" fashions while young people turned toward the "grunge" look of jeans and flannel shirts. The mistake forced the company to take a $35.1 million write-down in the third quarter for the unwanted inventory.

The company, in its filing, listed $463 million in assets and $265 million in liabilities.

In addition to its $125 million of credit with CIT Group, the company has $90 million in cash.

In Tuesday's bankruptcy filing, Merry-Go-Round said it had $16.1 million in secured debt and $249.1 million in unsecured debt, held by 86,150 companies and individuals.

The secured debt included a $10 million mortgage loan from the Aid Association for Lutherans, a fraternal benefit society in Appleton, Wis., that sells life insurance and annuities. An additional $5 million is owed to Signet Bank/Maryland and is secured by a building that houses a Boogie's Diner in the Georgetown section of Washington.

Signet also holds $20.8 million in unsecured debt, and the Aid Association has a $5 million unsecured debt, according to the filings.

CREDITORS

Merry-Go-Round Enterprises Inc.'s 20 largest unsecured creditors, in millions of dollars.

Principal Mutual Life $35.2

Melville Corp. $29.6

Signet Bank/Md. $20.8

Mass Mutual $20.1

Nat'l Westminster Bk. $10.4

Boatmen's National $7.8

Credit Suisse $5.2

Aid Assoc. for Lutherans $5.0

Heller Financial $3.7

CIT Group $3.4

Principal Nat'l Life $3.0

NationsBank $2.9

Congress Talcott $2.7

Republic Factors $2.4

Barclays Commercial $2.2

TMG Life Ins. $2.0

Guess? Inc. $1.8

BNY Financial $1.6

Saxony $1.5

Rosenthal & Rosenthal $1.0

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