Uncertainty surrounding the fate of Kmart and its potential bankruptcy filing created a trading lock in the secondary market as LMW went to press as traders were staring at a laughable 50-75 bid/ask spread. That gaping span capped a wild ride for the bank debt, which started the week at 95-97, slipped on Monday to 85 as the ratings agencies continued to downgrade the name, and dropped even further to 70-75 by Wednesday.
The mood Friday had improved on the news that that former board member and reorganization wizard James Adamson has been brought on as chairman. "They have the borrowing capacity to weather the storm," said one dealer, among many at the end of last week who remained optimistic about the company's fate now that Adamson was on board. Jack Ferry, spokesman at Kmart, said the company is reviewing current and prospective liquidity and business plans and is continuing discussions regarding existing and possible supplemental credit lines.
Trading throughout the week was sparse. Some dealers said $20 million may have traded, but most dealers said the movement in quotes was more about players tossing numbers around to see where the market would settle.
Since the beginning of January ratings have been downgraded seven notches on Kmart's existing $1.5 billion credit facility, taking the rating from BB+ to CCC. Tom Razukas, a Fitch analyst, said the biggest problem is that Kmart is not coming out with any statements. "We assume that negotiations are going on with the bankers and we hope they will get something in place," he said of the company's efforts to negotiate a deal with its lenders. Also, news that Martha Stewart might pull her name and her popular line of "Martha Stewart Everyday" products from the discount retailer if it were to file for bankruptcy, did not help its securities win the confidence of would-be buyers. Adamson directed Advantica Restaurants Group through its bankruptcy and diversity issues in 1995. Former chairman Charles Conaway, will remain on as chief executive