Carter Hawley Debt Ratings Downgraded

The nation’s two biggest credit rating agencies sharply lowered their ratings Tuesday on the debt of troubled department store operator Carter Hawley Hale Stores Inc., parent of the Broadway-Southern California, sending its stock and junk bonds plunging.

Carter Hawley Hale, which is based in Los Angeles, said late in the day that its attempts to raise cash through the $50-million sale of its credit card business had collapsed. It also said it was abandoning attempts to arrange a $100-million pool of working capital with a group led by Bank of America.

Carter Hawley, which took on debt while fending off a takeover attempt three years ago, reported weak sales over Christmas and lost $26 million in its past fiscal year. At least one supplier has been asked to delay shipments.

Moody’s Investors Service Inc., in explaining its decision to cut its ratings of Carter Hawley’s $350-million in junk bonds, said, “Liquidity problems are apparent.”

Standard & Poor’s Corp., the other big credit-rating agency, said: “These actions reflect continued weakness in the company’s retail operations and S&P;’s concern that its banks, factors and vendors may become unwilling to continue to support the company.”

Carter Hawley spokesman Bill Dombrowski refused to comment on any problems paying bills or on the decline in the stock and bond prices.

However, the company said in a statement that it was in “substantive discussions” concerning its financing and cash needs, raising fears on Wall Street it would seek to reorganize under federal bankruptcy law.

“Chances are very good that they may be the next victim,” said Paul Getman, an economist who follows the bond market for Regional Financing Associates in West Chester, Pa.

“There has been a bankruptcy of a major retailer every week since the new year started,” the most recent being Canton, Mass.-based Hills Department Stores on Monday, Getman said.

He said fears that unemployment and the recession are deeper in California than elsewhere were compounding the perception that Carter Hawley is a weak competitor.

“They’re not as efficient as a Wal-Mart or the other discounters, and they’re not as wealthy as a Nordstrom or a May Co. which can constantly refurbish their stores, so they’re really caught in a squeeze,” Getman said.

Leonard Rabinowitz, the chairman of the company that makes Carole Little women’s clothing, said in a telephone interview that a factor, or middleman, had asked him to delay February’s $4-million shipment to Carter Hawley.

Rabinowitz expressed confidence in Carter Hawley management, particularly H. Michael Hecht, recently promoted to president of the retailer.

He said he believed that Carter Hawley would continue to pay suppliers and employees and provide goods for customers, perhaps through a restructuring that would include borrowing against its real estate holdings.

However, he said: “The obligation to stockholders and bondholders comes after the vendors, employees and customers.”

Following a 20% decline on Monday, Carter Hawley shares fell 25% Tuesday on the New York Stock Exchange, from $2.50 per share to $1.875. That equaled the lowest level ever for the stock, which was trading in the $14 range in the summer of 1989.

The price of its junk bonds also tumbled. On the NYSE, Carter Hawley’s 12.25% bonds maturing in 1996 fell $130 to $250 per $1,000 face amount, and its 12.5% bonds due in the year 2002 fell $120 to $210.

Carter Hawley fended off a takeover three years ago by piling on debt and spinning off the upscale Neiman Marcus and Bergdorf Goodman stores. It has recently moved to cut that debt to about $700 million from $1.6 billion.

In December, it sold its Richmond, Va.-based Thalhimers chain for $317 million to May Department Stores. Last month, it reached a tentative agreement to sell its credit card operation to General Electric Capital Corp. for $50 million in the deal it said Tuesday had fallen apart.

The company also has eliminated about 1,000 jobs to cut costs. The chains it operates include Broadway stores in Southern California and Arizona, Emporium in the Bay Area and the Sacramento-based Weinstocks.

The company recently undertook a drive to refurbish its aging store layouts and displays.