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In a move Wall Street widely anticipated, Kmart Corp. filed for Chapter 11 Tuesday, making it the largest retailer to seek bankruptcy protection in history. The filing in the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago follows weeks of speculation from analysts and the media that the Troy, Mich.-based retailer was on the brink of seeking Chapter 11 protection after failing to make payments to suppliers. In its court papers, Kmart and its U.S. subsidiaries listed total assets of $17 billion and liabilities of $11.3 billion as of the fiscal quarter ended Oct. 31. The nation’s second-largest discount retailer, which last week shuffled its management, said it hopes to emerge from bankruptcy by 2003. “We are determined to complete our reorganization as quickly and smoothly as possible, while taking full advantage of this chance to make a fresh start and reposition Kmart for the future,” Charles Conaway, chief executive officer, said in a statement. Kmart also said it expects to secure $2 billion in debtor-in-possession financing from Credit Suisse First Boston, Fleet Retail Finance Inc., General Electric Capital Corp. and J.P. Morgan Chase & Co. Though the bankruptcy court must first approve the DIP, Kmart expects access to $1.15 billion following an interim court hearing scheduled for late Tuesday afternoon. Kmart’s main food distributor, Fleming Cos., said Monday it cut off most shipments to Kmart after it failed to make its regular weekly payment for deliveries. To date, Kmart, Fleming’s largest customer, owes the food company $78 million. The bankruptcy announcement also hit Kmart’s stock price hard Monday morning. Moody’s Investors Service downgraded the retailer’s debt to a lower “junk” status. Kmart shares fell 53 percent to 81 cents in early trading on the New York Stock Exchange, down from Friday’s close of $1.74. Kmart said its 2,114 stores will continue to operate as the company restructures, but it would review the future of all stores. It could close as many as 400 stores, the company has said in recent weeks. During the restructuring process, vendors, suppliers and other partners will be paid under normal terms for goods and services provided during the reorganization. Since his arrival as CEO in May 2000, Conaway has closed underperforming stores and reinvented Kmart’s trademark BlueLight special. But retail sources say it hasn’t been enough to compete with the No. 1 discount chain Wal-Mart Stores Inc., or more stylish rival Target Corp. Jack Butler, a partner in the Chicago office of New York law firm Skadden, Arps, Slate, Meagher & Flom, is the debtor’s counsel, while U.S. Bankruptcy Judge Susan Pierson Sonderby of the Northern District of Illinois is handling the case. Ronald Hutchison, formerly the chief financial officer of Advantica Restaurant Group Inc. and the turnaround specialist for Leaseway Transportation Corp., has been named chief restructuring officer. He will work alongside James Adamson, who was elected chairman of Kmart last week to oversee the reorganization. Kmart, with about 275,000 employees, is the largest retail bankruptcy since Federated Department Stores Inc. filed for Chapter 11 in 1990. Copyright (c)2002 TDD, LLC. All rights reserved.

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