Kmart Asks for More Leniency, More Cash

Kmart Corp. (Troy, Mich.) has asked a federal bankruptcy judge for permission to borrow another $500 million so it can pay suppliers through the holiday season.

As part of the request, the bankrupt retailer wants creditors to adjust some of the terms governing its loan agreements.

In a motion filed Wednesday with the U.S. Bankruptcy Court in Chicago, Kmart sought permission to increase the size of a loss the company could report — before interest, taxes and depreciation — from $100 million to about $400 million. The end of Kmart's first required reporting period is the end of this month.

“The company's sales have been slower to rebound than we had hoped,” said cfo Al Koch. “We don't want our vendors … to be worried that we will fall below our covenant.”

Koch said he was not certain the company would exceed a $100 million loss, but it was possible. “I don't need people to worry. I need their confidence,” he said.

Kmart said it has $400 million in cash available. “We believe that seeking the increase will provide additional comfort to our suppliers,” said Koch, stating that the increase would help ensure the company succeeding during the “critical holiday season.”

“If we were to increase the line it would simply be a greater cushion,” Koch said. The term of Kmart's $2 billion credit line is 27 months, covering the retailer beyond its July 2003 target date for exiting Chapter 11 bankruptcy protection.

Most of Kmart's lenders are believed expected to stay in the case until Christmas sales figures become available.

Kmart filed for Chapter 11 on Jan. 22, 2002, following disappointing 2001 holiday sales and a stock dive. The financially strapped retailer reported a net loss of $137 million for June, marking an 8.7 percent decline in same-store sales. Kmart has closed 283 stores and laid off 22,000 employees this year.