Merry-Go-Round seeks more time to reorganize

August 16, 1994|By Jay Hancock | Jay Hancock,Sun Staff Writer

Merry-Go-Round Enterprises Inc. has asked for more time to set up a bankruptcy reorganization plan for itself without being distracted by alternative plans from outsiders.

The Joppa-based retailer, which sought bankruptcy protection on Jan. 11, has asked Judge E. Stephen Derby to ban reorganization plans offered by creditors and other third parties until after Feb. 28. Merry-Go-Round argued that its affairs are too complicated for it to craft a plan before then.

The request, which had been expected, could set up a contest between creditors, who want Merry-Go-Round to emerge quickly from bankruptcy so they can receive the money owed them, and shareholders, who favor a longer process that allows the company to fix its business and preserve stock value.

Shareholders "are probably going to support the motion in its entirety," said Peter A. Chapman, head of Bankruptcy Creditors Service Inc., a Princeton, N.J., publisher of court information. They'll want to "leave this thing in Chapter 11 as long as possible," he said.

Fidelity Investments, the Boston mutual fund company and Merry-Go-Round's biggest creditor, objected last spring when Merry-Go-Round made its first request to extend its exclusive privilege to produce a reorganization plan. Fidelity may object again, analysts said.

Merry-Go-Round's "exclusivity period" expires on Aug. 31, but the company is only in the very early stages of planning for post-bankruptcy operations, managers say.

The retailer "cannot complete the formulation of its business plan until it knows the results of the upcoming back-to-school and holiday selling seasons," the company said in a filing in U.S. Bankruptcy Court in Baltimore. Managers are still deciding which stores to close, and a competing outside plan "would have a substantial adverse impact" on its performance, the company said.

Mr. Chapman believes that Merry-Go-Round may not emerge from bankruptcy protection until 1996.

Also yesterday, Merry-Go-Round revealed that it would pay a $100,000 fee to New York-based CIT Group for altering a loan agreement to make allowance for the retailer's worse-than-expected results this year.

Despite losing $24.1 million for the quarter that ended April 30, Merry-Go-Round is far from insolvent. It hasn't tapped the $125 million CIT loan yet. Merry-Go-Round is current with landlords, tax collectors and vendors. And it was sitting on $79.4 million in cash as of July 2.

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