The US economic slump has picked up another round of corporate victims from outside the struggling financial and mortgage sector.
The privately-owned Boscov’s Inc, employing more than 9,000 people, filed for bankruptcy protection overnight, the third US retail chain to fail in a week. Last week it was the Mervyn’s Department Store group, and the restaurant chains Bennigan’s and Steak & Ale.
Boscov’s, which started trading 97 years ago, is America’s largest family-owned independent department store. It will close at least 10 of its 49 stores to cut costs while in bankruptcy protection.
Mervyn’s was owned by a private equity group and that makes it a notable failure. It was bought from Target by Sun Capital back in 2005 for $US1.2 billion and started closing stores in some US western states before stabilising.
Groups getting into trouble or needing new finance are being cut adrift, or are having previously levels of finance cut or pulled by banks which in turn are borrowing more than $US17.4 billion a day from the US Federal Reserve to keep themselves alive.
The credit rationing was best seen by the 20% drop in the amount of money banks were prepared to give privately owned car giant, Chrysler. Chrysler had sought $US30 billion in new working capital to finance car production and selling through its deals with a generous list of new incentives. As part of the refinancing Chrysler stopped leasing cars to buyers. But the banks would only advance $US24 billion, which will force Chrysler to cut its incentives and to possibly cut car production.
Chrysler cut its financing request after pulling out of leasing, but at least two major banks, believed to be a French one called Calyon and Bank of America, declined to renew their funding of Chrysler which is owned by private equity group, Cerberus Capital Management (which owns 51% of the troubled financier, GMAC).
In addition to the failure of Boscov’s, homebuilder WCI filed for bankruptcy protection after failing to obtain new financing and losing 90% of its value in the past year. WCI, which started building in 1946, became one of at least a dozen US homebuilders to fail since June of last year.