Aug. 5--Boscov's Inc., a venerable retailer that has been part of the fabric of downtown shopping in Northeast Pennsylvania for decades, filed for bankruptcy protection Monday.

The move would give the Reading-based chain a chance to fend off creditors as it consolidates and tries to re-emerge as a profitable company.

In a first step, the company announced Monday it will close 10 of its 49 stores. The 39 surviving stores include those in downtown Scranton, downtown Wilkes-Barre and the Laurel Mall in Hazleton.

The privately held department store chain is in arrears for millions of dollars with major clothing suppliers such as Jones Apparel Group, Hanes, Adidas and VF1. Vendors expressed unease about continuing to ship merchandise and not being paid.

To keep the doors open for the back-to-school shopping season -- the most important on the retail calendar except for the winter holidays -- Boscov's had to declare bankruptcy and free up money to stock merchandise.

Boscov's Chapter 11 filing in U.S. Bankruptcy Court in Delaware allows it and its creditors to work out a reorganization plan that will result in a very different Boscov's -- or no Boscov's at all.

The first round of the reorganization began early Monday, with the company reporting $538 million of assets and $479 million of liabilities as of May 3. As a privately held company, Boscov's financial details are not regularly disclosed.

Austin Burke, president of the Greater Scranton Chamber of Commerce, said he had always been told by Boscov's officials that the Scranton store was a top performer since it opened in 1993. Al Boscov, the company's retired chairman, was a lead partner in development of the Mall at Steamtown and remains its owner.

Mall at Steamtown manager James Walsh said bankruptcy will have no impact on the mall, which has no legal connection to the retail store or its subsidiaries.

Staying in business

After weeks of quiet negotiations, the company secured a $250 million loan from Bank of America on Monday to buy merchandise and continue operating. The post-bankruptcy loan, called "debtor-in-possession" financing, allows the company to pay for goods and services going forward. Such debt is given a priority in the bankruptcy over unsecured claims and sets up Boscov's to handle the back-to-school and holiday seasons.

Boscov's stores will be business as usual, officials said, with sales, coupons and perhaps "register roulette." Behind the scenes, though, officials will scramble to reorganize.

In court documents, Boscov's Executive Vice President Michael Hughes said the company plans to streamline, strengthen its balance sheet and get out of bankruptcy as a stronger retailer.

But what happens to Boscov's is not up to Mr. Hughes and other company executives. Part of the Chapter 11 proceeding creates a committee of creditors, made up of those to whom most is owed. Sometimes there are multiple committees -- one for secured creditors, others for unsecured.

"This committee will include powerful people who are owed lots of money," said Howard Davidowitz of Davidowitz & Associates Inc., a retail investment and commercial banking firm in New York City. "These representatives don't want to run a department store -- they want to get as much of the money owed to them as possible."

Future undetermined

The creditor committee will run the company jointly with Boscov's management. Possible moves include continuing to operate the company or selling it off in parts or whole. Although filing for Chapter 11 shows an intent to continue operating, liquidation remains an option.

Company executives and creditors will work out a plan for reorganization and file it with the court within three months.

The company also will explore selling all stores and plans to pick a stalking-horse bidder, which is a prospective buyer who submits an initial private bid that other bidders would have to exceed. The stalking-horse practice creates competitive pressure that discourages low-ball offers from other bidders.

It's not clear, however, that any retailers have the wherewithal to buy Boscov's, given the wave of bad news in the retail sector. Some of Boscov's peers, such as the privately owned Mervyns, recently filed for bankruptcy, as have specialty retailers such as Steve & Barry's and Sharper Image.

With credit universally tight, retailers and private equity groups would have to look hard at making an acquisition of Boscov's work.

"Boscov's is already damaged for back-to-school -- they are going to get killed," Mr. Davidowitz said of the company's slow start.

Unsecured creditors will have to get in line behind the big secured creditor, Bank of America, which financed the Ken Lakin purchase of the chain from his father, Ed Lakin, and uncle Albert Boscov. That principal balance, $122 million, is secured by the company's assets.

The company borrowed more to purchase 10 stores from Federated in 2006. According to the bankruptcy filing, the company has between 10,000 and 25,000 creditors, about 3,000 of whom are vendors.

Scores of other retailers sought bankruptcy protection this year as the housing market collapsed, credit tightened and the economy soured. With the rise of specialty retailers focusing on clothing, electronics and sporting goods, the department store format had become an anachronism. Shopping malls drove retailing and commerce out of downtowns where Boscov's staked its claim in Northeast Pennsylvania.

Boscov's misfortune hit just as it approaches its centennial. The company was founded in 1911 by a Russian immigrant who peddled goods door-to-door. The fate of the business that began on an immigrant's back is today being decided by a judge and anxious creditors.

Contact the writer: dfalchek@timesshamrock.com

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