Circuit City gets OK for $1.1b loan

Deal allows retailer to keep operating while it reorganizes

Richmond-based Circuit City is losing market share to Best Buy Co. and Wal-Mart Stores Inc., while Amazon.com Inc. and other online retailers undercut it with lower prices. (Sandy Huffaker/Getty Images)

WILMINGTON, Del. - Circuit City Stores Inc., the seller of televisions and computers that filed for bankruptcy protection yesterday, won court approval to borrow up to $1.1 billion to finance operations on an interim basis while it restructures.

Bankruptcy Judge Kevin Huennekens approved the so-called debtor-in-possession loan at a hearing in Richmond. Bank of America Corp. is the agent for the lenders. The electronics retailer said the loan was needed to stock merchandise and pay employees.

Gregg Galardi, Circuit City's attorney, agreed to change the loan request to eliminate opposition from suppliers, including Panasonic Corp. and Verizon Wireless. The suppliers asked Huennekens to ensure that Circuit City didn't take their goods, some of which are in stores on consignment, and use them as collateral.

The company owes $119 million to Hewlett-Packard Co., the world's largest maker of personal computers, and $116 million to Samsung Electronics Co., the top maker of flat-panel displays, according to the company's bankruptcy filing. In its Chapter 11 petition, Circuit City listed assets of $3.4 billion and debt of $2.32 billion.

Circuit City, founded in 1949 when Samuel Wurtzel opened the city's first retail television store, has lost more than $5 billion in stock market value in the past two years. The Richmond company plans to stay in business while it devises a plan to restructure.

The chain, the biggest electronics retailer in the United States until the mid-1990s, filed for bankruptcy protection before it had a chance to take in cash from the holiday selling season, when it gets more sales than at any other time of the year. The chain is losing market share to Best Buy Co. and Wal-Mart Stores Inc., while Amazon.com Inc. and other online retailers undercut it with lower prices.

On Nov. 3, the retailer said it would close one-fifth of its US stores and renegotiate leases for some locations to conserve cash. The closings will leave it with about 566 US stores and 80 percent of its 43,000 employees. Yesterday, Circuit City also said it will cut 700 jobs in its store support department.

None of the closings revealed last week were in Massachusetts.

Management tried to sell the company in May after Blockbuster Inc. made a preliminary offer that was later withdrawn. The retailer fired higher-paid workers and opened smaller stores to cut costs. Until the shift, the company's strategy had been to sell in locations as large as 44,000 square feet.

Circuit City fell 16 cents, or 62 percent, to 9.5 cents in over-the-counter trading.