RICHMOND, Va. – Circuit City Stores Inc. on Monday received final approval for $1.1 billion in financing to keep operating while the nation's second-biggest electronics retailer is in Chapter 11 bankruptcy protection.
U.S. Bankruptcy Judge Kevin Huennekens approved the debtor-in-possession loans at a hearing in Richmond. The financing, which replaces a $1.3 billion asset-backed loan the company had been using, will be used to stock merchandise and pay employees.
Richmond, Va.-based Circuit City filed for bankruptcy protection last month as it faced pressure from vendors and consumers who aren't spending. Its Canadian operations filed for similar protection.
Gregg Galardi, an attorney for Circuit City, said that since filing for bankruptcy, the company's sales have been hurt by the weak consumer spending environment and are down between 40 percent and 50 percent.
Galardi called the financing and restructuring efforts a "bridge to somewhere" and said the company is still pursuing the sale of all of its assets.
Circuit City, which has posted losses for seven of the last eight quarters, plans to keep operating while it develops a reorganization plan to deal with significant declines in traffic and heightened competition from rival Best Buy Co. and others.
The judge also approved a motion to void severance agreements with about 40 former employees, including Philip J. Schoonover, who stepped down as chairman, president and CEO in September. Several employees were granted time to file objections because they had not received adequate notice. Employees can still seek payments like other creditors in the case.
Circuit City also was able to break service agreements with Google Inc. and National Service Alliance Inc., and hotel reservation contracts with the MGM Grand Hotel & Casino in Las Vegas and The Jefferson Hotel in Richmond.
The company said the contracts were "financially burdensome and unnecessary," according to court documents. The court filings did not say how much Circuit City would save by voiding the contracts.
Schoonover, who was replaced by Vice Chairman and Acting President and CEO James A. Marcum, was expected to receive at least $1.8 million in a severance deal after resigning from his post, according to regulatory filings.
The judge also said he would rule at a Jan. 29 hearing on whether Circuit City could break the leases for all but one of the 155 stores it plans to close this month. The company canceled an auction of the leases last week because it received too few bids. Monthly expenses for those leases are about $6 million, according to court documents.
Circuit City now plans to break a total of 304 leases. That includes 150 leases it had already received approval to break earlier this month for places where it no longer operates stores, which the company said cost $40 million annually.
Circuit City announced plans in early November to close 155 of its more than 700 U.S. stores by Dec. 31 and lay off about 17 percent of its domestic work force, or up to 7,300 people. The affected stores are spread across 28 states, including multiple locations in Phoenix, Atlanta and other areas.
The company, which said it had $3.4 billion in assets and $2.32 billion in liabilities as of Aug. 31, hopes to emerge from court protection in the first half of next year. At that point, it could seek a buyer or operate on its own again.