Central Valley

Gottschalks creditors could see relief

FRESNO -- For almost a year, creditors of Gottschalks Inc. have wondered what, if anything, they would receive on what they are owed by the bankrupt department-store chain.

Many have held out little hope.

But as the Fresno-based retailer approaches its final wind-down, court records suggest that businesses to whom millions are owed may recover at least a fraction of their loss.

Gottschalks -- which filed for Chapter 11 bankruptcy protection in January 2009 and shuttered the last of its 58 stores in July — estimates in court documents that it owes unsecured creditors $75 million to $105 million.

"It's a situation where we've written it off," said Michael Thielen, owner of a Fresno advertising agency owed more than $42,000 by Gottschalks. "We don't expect to see a penny."

The wild card is how much money Gottschalks will have available.

In a disclosure statement filed with the bankruptcy court last month, Gottschalks Chief Operating Officer Gregory Ambro estimated that by the time a bankruptcy plan is approved early this year, "available assets may be in the range of approximately $4 million to $10 million" to repay unsecured debt.

If those numbers prove out, and if the estimates of the debt are accurate, creditors could receive 3 cents to 13 cents on the dollar. Not much, to be sure, but better than nothing.

The most recent financial statement from Gottschalks shows the company had about $11 million in the bank at the end of November.

Gottschalks still owes $2.3 million to dozens of Fresno- and Clovis-area companies and agencies with whom the department-store chain did business. The amounts they're owed range from tens of dollars -- such as a $20 claim by Animal Rescue of Fresno — to tens of thousands of dollars, including more than $610,000 to The Fresno Bee.

Among the companies are Thielen's ad firm, Thielen IdeaCorp, and Roger Rocka's Good Company Music Hall, a Fresno dinner theater.

Roger Rocka's was left holding the bag for about $15,933 worth of dinner-theater gift certificates sold by Gott- schalks. Customers paid Gottschalks for the certificates, but that money never was passed along to Roger Rocka's before the bankruptcy protection filing, said Denise Graziani, general manager for the dinner theater.

"Obviously for a small business like us, $16,000 is a lot of money," Graziani said. "To not have that money from last year made it difficult to get through."

Graziani said Roger Rocka's has continued to honor the gift certificates for show tickets and dinner packages when they're presented by patrons at the box office.

Thielen IdeaCorp handled the placement of Gottschalks' radio and television ads in cities across the western United States before the company's bankruptcy protection filing.

"It's a tough loss for a small business like ours," Thielen said of Gottschalks' $42,574 debt. "But the real loss is losing a viable company that is no longer there, so there's no way you can look to them for business in the future."

Local ad agency took it hard

Gottschalks was a major client for Thielen's firm.

"As an ad agency, it's difficult when you lose a client, because you staff for the time it takes to do what we do for marketing," he said. "Whenever you have a loss like that, it affects people's jobs."

Graziani said Gottschalks' financial troubles in the latter part of 2008 — declining sales, falling profits and a plummeting stock price -- were reason for concern even before the filing.

"It was looking like they were going to file, but we were always holding out hope," she said. "We wanted to support them because they're local and we're local, but we were a little worried."

Now, Thielen's and Graziani's companies find themselves on a nearly 200-page list of creditors lining up with unsecured claims.

The fate of those claims is buried amid the dense legal language of documents filed last month in the U.S. District Bankruptcy Court in Delaware. A bankruptcy plan spells out how Gottschalks hopes to close its existence as a corporation.

There are some secured "priority" creditors, including GE Capital Corp., that will be fully repaid what they're owed. GECC was Gottschalks' primary lender before bankruptcy, and it provided $125 million in financing for the company to limp along after the bankruptcy filing.

The attorneys, accountants and consultants shepherding the bankruptcy case for Gott- schalks are expected to be paid in full. Through No- vember, those firms have submitted bills for nearly $11.5 million, of which more than $8.8 million has been paid.

13 million shares to vanish

Next come the unsecured "impaired" creditors who stand to recover whatever is left after higher-priority claims are paid. They include the vendors of goods and services, employees who had accrued vacation time for which they weren't paid, and others on Gott- schalks' "accounts payable" list when it filed for bankruptcy.

Finally, there are the owners of about 13 million shares of Gottschalks stock whose holdings will be canceled and declared worthless when the plan takes effect.

Less than three years ago, Gottschalks stock traded above $14 per share on the New York Stock Exchange. This week, the stock could be had -- if anyone wanted it — for two-tenths of a penny per share on the Pink Sheets, an electronic stock bulletin board.

Gottschalks officials report they expect the plan to be approved by the court and take effect by March 1, a date that would mark the beginning of the end.

A court hearing on the bankruptcy plan will be held later this month in Delaware. Soon after, impaired creditors — but not stockholders -- will be asked to vote on whether to accept the plan.

Rejection of the plan by creditors could stall the effective date until May 1 or later, delaying any payouts on claims, according to court records.

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