Circuit City makes bankruptcy filing

• By MICHAEL FELBERBAUM AND VINNEE TONG
• AP business writers
• Published: Nov 11, 2008 - Page: 1D - UPDATED: 12:05 a.m.

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RICHMOND, Va. — Circuit City Stores Inc., which just a week ago announced it would close its Baton Rouge store on Airline Highway among 700 companywide, has now filed for bankruptcy protection, allowing it to stay open during the approaching holiday season.

The nation’s second-biggest electronics retailer said it decided to file for bankruptcy protection because it was facing pressure from vendors who threatened to withhold products during the holiday shopping period.

The company also said it cut 700 more jobs at its Richmond, Va., headquarters, after announcing a week ago that it would close 20 percent of its stores and lay off thousands of workers.

The store closures include Circuit City’s store on Airline Highway near Florida Boulevard in the Mall at Cortana area. Another at the Mall of Louisiana will remain open.

Three other Louisiana stores set for closure are in the New Orleans area — on Veterans Boulevard in Kenner, Lapalco Boulevard in Marrero and on Airport Road in Slidell.

In court documents, Chief Financial Officer Bruce H. Besanko cited three factors: erosion of vendor confidence, decreased liquidity and the global economic crisis.

“Without immediate relief, the company is concerned that it will not receive goods for Black Friday and the upcoming holiday season, which could cause irreparable harm to the company and its stakeholders,” Besanko said in the filing.

Its shares fell 14 cents, or about 56 percent, to 11 cents on Monday before being halted.

Circuit City, which has had only one profitable quarter in the past year, has faced significant declines in traffic and heightened competition from rival Best Buy Co. and others. The company laid off about 3,400 retail employees last year and replaced them with lower-paid workers, a move analysts said could backfire, hurting morale and driving away customers.

While the retail industry overall is facing what’s expected to be the weakest holiday season in decades, Circuit City’s struggles have intensified as nervous consumers spend less and credit has become tighter.

At a hearing in Richmond, U.S. Bankruptcy Judge Kevin Huennekens granted Circuit City interim approval to secure $1.1 billion in debtor-in-possession loans while it is in bankruptcy protection. Those funds, needed to stock merchandise and pay employees, replace a $1.3 billion asset-backed loan the company had been using.

Circuit City also was granted interim approval to abandon 150 leases at locations where it no longer operates stores, which it said costs $40 million annually.

The company, which said it had $3.4 billion in assets and $2.32 billion in liabilities as of Aug. 31, is hoping to exit court protection by early summer 2009, putting it in a position to find a buyer for the chain or operate as a standalone business.