Carter Hawley Fails to Line Up Credit, Cut Debt

Carter Hawley Hale Stores, caught in a cash squeeze, said late Tuesday that a $100-million loan agreement with its bankers is being scrapped.

The company also said that a deal negotiated last month to sell its credit-card operation to General Electric Capital Corp. has collapsed. The sale had been intended to reduce Carter Hawley’s debt by $600 million.

Carter Hawley’s disclosures came several hours after Wall Street’s two leading ratings agencies downgraded the big retailer’s $350 million in junk bonds, raising serious doubts about the company’s financial health.

Los Angeles-based Carter Hawley, parent of the Broadway-Southern California, is the West’s biggest department store organization, with 88 stores.

In its news release, Carter Hawley said “it does not anticipate proceeding with its previously announced proposed working capital facility,” a $100-million credit line from a group headed by Bank of America. It was to have replaced Carter Hawley’s previous working capital credit line of $140 million, which is expiring.

Carter Hawley added, however, that “it is engaged in substantive discussions” concerning its financial needs. A company spokesman declined to elaborate, other than to say Carter Hawley is operating with cash flow from the Christmas shopping season.

After learning of Carter Hawley’s latest announcements, analysts said the company’s prospects appeared to have grown dimmer. It will be “very tough” for Carter Hawley to avoid going into Chapter 11 bankruptcy proceedings, said Dorothy K. Lee, an analyst with Moody’s Investors Service, one of the firms that downgraded the retailer’s debt.

Under Chapter 11, a company is protected from creditors and continues to operate while it tries to work out its financial problems.

Earlier in the day analysts for Moody’s and Standard & Poor’s bond ratings firms questioned whether Carter Hawley will be able to make a $23.3-million interest payment due Feb. 15 on its junk bond debt. They also expressed concerns that Carter Hawley is being cut off by its suppliers who are worried about not getting paid.

Tuesday’s news of the bond downgradings triggered a sharp drop in Carter Hawley’s stock and bonds for the second day in a row. On the New York Stock Exchange, Carter Hawley’s stock was the third-biggest percentage loser. It fell 62.5 cents, or 20%, to return to its all-time low of $1.875.

Carter Hawley’s 12.5% bonds maturing in the year 2002 were off $123.75, to $221.25 per $1,000 of face value, on the exchange. Its 12.25% bonds due in 1996 were off $80 to $300.

On the expectation that Carter Hawley’s current bonds won’t be paid off in full, Moody’s lowered its rating on the debt from B3 to Caa, the firm’s lowest rating for a company not in default.

S&P; lowered its rating on Carter Hawley bonds from single-B-minus to triple-C-minus, and put the securities on S&P;’s CreditWatch list with negative implications, meaning that the rating may be cut further. S&P; analyst Joanne Legomsky said the new rating reflects “questions about the viability of the company.”

She expressed concern that Carter Hawley stores will be unable to get new merchandise unless the company wins back the confidence of suppliers.

Credit advisers to apparel firms, some of whom have complained for months that Carter Hawley is slow in paying many of its bills, on Monday urged clients supplying the retailer to reconsider their stances. Richard Hastings, an analyst with Solo Credit Service, said that on Friday he began telling clients to ship to Carter Hawley stores only if they pay cash on or before delivery.

Until then, Hastings was advising clients to extend normal credit to Carter Hawley.

The head of one major supplier to Carter Hawley that has continued shipments to the retailer in recent months said Monday that he would put further shipments “on hold.” Bernard Chaus, chairman of a women’s apparel company in New York bearing his name, said he was worried by reports that Carter Hawley has stopped paying its bills.

Chaus said Carter Hawley missed a payment to his company that was due recently, and that his phone calls to the retailer have not been returned.

Carter Hawley declined to comment on the shipments.