The future of Chicago-based Montgomery Ward & Co. may be a bit fuzzy, but the vision of the retailer’s creditors couldn’t be sharper.
There are only two questions with which most creditors will be concerned, according to bankruptcy experts: How much is Wards going to pay its creditors and when can creditors expect to receive the payment?
Wards, which filed for Chapter 11 federal bankruptcy protection on Monday, set in motion a well-defined negotiating process that seeks to protect the interests of its main owner, GE Capital Corp., while giving the company’s management time to prepare a restructuring plan that creditors buy into.
A bankruptcy reorganization means GE Capital, which owns a 50 percent interest in the company, and former Ward’s chief executive officer Bernard Brennan, who holds a 30 percent stake in the company, now own a company that is virtually worthless. GE and Brennan may recoup some of their investments if Wards emerges from bankruptcy.
“Wards is a case where the equity holders are playing to protect their equity,” said Robert Fishman, president of the Washington, DC-based American Bankruptcy Institute. “Wards isn’t going to propose a plan that wipes out the ownership.”
Negotiations between Wards’ management and ownership and its creditors will determine Wards’ future.
“The thinking is that they need to stabilize the business, get rid of the stuff that doesn’t work very well and have a business going forward that works,” said Fishman, a partner in the Chicago-based law firm of Ross & Hardies.
Wards will have four months to prepare that plan.
Dozens of unprofitable stores will probably be closed and thousands of the company’s employees likely will be fired.
Ward’s filed for bankruptcy protection after the collapse of talks to delay a $1.4 billion payment due in August and to secure cash to pay vendors.
Experts noted that stockholders don’t necessarily have to lose.
The goal of a Chapter 11 bankruptcy is to preserve as much of the status quo as possible.
Fishman predicted that millions of dollars in unsecured debt owed banks and suppliers will be left unpaid under the settlement that eventually is crafted.
Making those creditors happy, despite having to swallow a big bill, is the key.
“They will be offered a combination of money and stock,” said Fishman, noting that the company likely will try to keep the cash element of the proposal small.
Many of Wards’ creditors will continue doing business with the department store chain.
“Creditors don’t care about pro formas, ratios or accounting,” said Fishman.
