Judge Approves Circuit City Bankruptcy Financing

In Richmond, Virginia, a judge approved $1.1 billion in financing for Circuit City, the nation's second-largest electronics retailer.  The store received final approval for financing this Monday after filing for Chapter 11 bankruptcy protection.

After a hearing in Richmond, U.S. Bankruptcy Judge Kevin Huennekens approved the debtor-in-possession loans requested by Circuit City.  The loan will replace a $1.3 billion asset-backed loan the company had been using prior to financing.  The existing loan was used to stock merchandise and to pay the store's employees.

The judge also ruled that the store could motion to void severance payments to 40 former employees, including its' prior chairman, president, and CEO, Philip J. Schoonover.  Circuit City was also able to break service agreements with advertisers like Google Inc. and National Service Alliance Inc.

The company said the contracts were "financially burdensome and unnecessary," in its court documents.

Last month, Circuit City filed for Chapter 11 bankruptcy protection after dealing with immense pressure from vendors and consumers, who had stopped spending due to a poor economy.  The store's lead attorney claims that weak consumer spending hurt Circuit City's sales, which are down between 40 and 50%.  The store's Canadian operations also filed for bankruptcy protection.

Circuit City, which has incurred losses 7 out of 8 of the last quarters, is hoping to continue operations while it restructures.  The store plans to reorganize efforts so that it can compete with its' rival, Best Buy.

On August 31st, 2008, Circuit City reported that it had $3.4 billion in assets and $2.32 billion in liabilities.  The company is hoping to emerge from court protection in 2009, and may either seek a buyer or continue its operations on its own. 

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