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Bankrupt Spiegel aims to restructure its debt

DOWNERS GROVE, Ill. — Spiegel Inc., parent of Eddie Bauer, Newport News and the Spiegel Catalog, filed for Chapter 11 bankruptcy protection on Monday following a long-term decline in its credit-card business.

The Downers Grove-based retailer said it had arranged for $400 million in bankruptcy financing and expected to keep all its stores and catalog operations operating throughout the bankruptcy process. The filing was in New York.

The company has warned for the past month that it would have to file for bankruptcy unless new financing emerged. As its financial difficulties mounted, it stopped accepting its private-label Visa and MasterCard credit cards at its businesses this month.

Bank of America, Fleet Retail Finance Inc. and the CIT Group/Business Credit Inc. provided the debtor-in-possession financing facility, which was arranged by Banc of America Securities LLC, the company said.

Spiegel said it expects to be able to gain access to the initial $150 million of financing upon approval by the U.S. Bankruptcy Court. It must meet certain conditions in bankruptcy to get access to the entire amount.

"This filing is an important step in a controlled process that we expect will allow The Spiegel Group to address its immediate liquidity needs, restructure its debt obligations and other financing arrangements and improve its prospects for future growth and profitability," said William Kosturos, chief restructuring officer and interim chief executive.

Spiegel said it is still actively seeking financing to support the credit-card business. In the announcement, it alluded to the risk of a Chapter 7 liquidation filing if its financial efforts fail.

Spiegel and its filing subsidiaries listed assets of $1.74 billion and liabilities of $1.71 billion as of Feb. 22.

The retailer's descent toward bankruptcy began in 1999 when it reported a huge spike in the amount of money owed by its credit-card holders — the result of a fast-growth strategy that backfired.

On March 7, the U.S. Securities and Exchange Commission accused it of violating securities laws by skipping quarterly filings last year in order to conceal its auditor's conclusion that it might not be able to stay in business.

Spiegel partly resolved the civil complaint with a consent and stipulation agreement but still faces a federal court decision on penalties. Moreover, financing for its credit cards — a key source of revenue — has dried up.

Spiegel on Monday said First Consumers National Bank, the bank subsidiary that issued its MasterCard and Visa cards, is being liquidated.

Kosturos took over as the company's top official on Feb. 28 after Martin Zaepfel resigned as CEO.

Spiegel markets apparel and home furnishings to customers through catalogs, e-commerce sites, and specialty retail and outlet stores.