Aug. 5--Unable to pay its debts as credit tightened and shoppers cut back, the Boscov's Department Store LLC voluntarily filed for bankruptcy protection Monday and took steps to emerge as a smaller but profitable company.

The company founded in 1911 filed for Chapter 11 bankruptcy, saying it has a $250 million financing agreement with Bank of America and will sell 10 underperforming stores from the 49-store chain. Boscov's stores in Wilkes-Barre, Hazleton and Scranton will remain open.

The filing in U.S. Bankruptcy Court for the District of Delaware enables the company to operate as it prepares a plan of reorganization, said local bankruptcy attorneys.

The present officers and administration of the Reading-based company continue to be in charge, explained attorney John Doran.

With the authority of the court they "put together old creditors and new bankers and old bankers and figure out how to get out of this and save the company," Doran said.

The fact that Bank of America is behind Boscov's indicates the lender sees it is in its best interest for the chain to continue, Doran said.

The bank provided a five-year revolving credit facility to Boscov's in January 2006. As of the bankruptcy filing date, the principal owed on the loan was $122 million, according to court documents.

"Simply, it keeps the wolves at bay," added attorney David Harris of the bankruptcy filing.

The company and seven affiliates filed a host of motions with the court that included allowing them to pay nearly 9,500 employees, permit customers to use gift cards and maintain the REWARDSCLUB program and pay distribution network vendors.

"Without those motions, certain things cannot be done," Harris said.

Like other retailers, Boscov's struggled as the housing market collapsed and consumers, facing "skyrocketing energy and gasoline prices and steadily increasing food costs," cut back on their discretionary spending, said Michael J. Hughes, vice president of capital development with Boscov's.

At the same time, vendors that deal with Boscov's reacted to the market and tightened their credit terms, Hughes said.

Among the top 40 unsecured creditors were Jones Apparel Group Inc., $3.1 million; Kellwood, $2.6 million ; VF1, $1.3 million.

In court papers, Hughes detailed the events leading to the bankruptcy filing.

Adding to the pressure was the acquisition of 10 former Federated department stores in 2006 that have not delivered anticipated increases in cash flow and profit.

Boscov's, the country's largest family-owned independent department store chain, reported $1.25 billion in sales for the fiscal year that ended Feb. 2. Sales during the following three months were $263 million. As of May 3, the company showed $538 million in assets and $479 million in liabilities on its balance sheet.

The combination of rising prices and inflation is squeezing consumers, said Scott Krugman, a spokesman for the National Retail Federation.

"It's sapping them of their spending power," Krugman said.

Mid-tier retailers, such as Boscov's, are caught between the better-performing bookends of luxury retailers and discounters, said Krugman. He predicted a challenging retail environment into the first quarter of 2009.

That's around the time Boscov's anticipates that the court will confirm its reorganization, according to court documents filed Monday.

But it has not ruled out selling its assets to a third party. In the meantime, it will file its plan to reorganize with the court sometime this fall.

The company resorted to filing for bankruptcy after attempts to refinance the debt and other measures failed.

Given the efforts outlined in the filings, the company "is well positioned to restructure its balance sheet and emerge from Chapter 11 as a profitable department store chain," Hughes said.

--Founded in 1911

--Opened its first full-service department store in 1962

--Operates 49 stores in six states

--Employs about 9,500 people

--Deals with more than 3,000 vendors worldwide

--Generated $1.25 billion in sales for fiscal year ended Feb. 2

--Sold approximately $263 million in merchandise as of May 3

--Reported nearly $538 million in assets; $479 million in liabilities

--Intends to sell 10 underperforming stores

Sites where Boscov's will close:

--White Marsh Mall, Baltimore, Md.

--Marley Station Mall, Glen Burnie, Md.

--Owings Mills Mall, Owings Mills, Md.

--Monroeville Mall, Monroeville

--South Hills Village Mall, Pittsburgh

--Oxford Valley Mall, Langhorne

--Montgomery Mall, North Wales

--Monmouth Mall, Eatontown, N.J.

--Piedmont Mall, Danville, Va.

--Harrisburg East Mall, Harrisburg

-----

To see more of The Times Leader, or to subscribe to the newspaper, go to http://www.timesleader.com.

Copyright (c) 2008, The Times Leader, Wilkes-Barre, Pa.

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NYSE:BAC, NYSE:JNY, NYSE:KWD,

Story Source: The Times Leader (Wilkes-Barre, Pa.)