- The Washington Times - Wednesday, January 16, 2002

DETROIT (AP) Shares of Kmart Corp. plunged close to 14 percent yesterday, fueled by concerns over a possible bankruptcy filing amid a series of downgrades by analysts and investment-rating agencies.
Shares fell 39 cents to $2.45 each on the New York Stock Exchange.
Kmart spokesman Jack Ferry confirmed that the company's board of directors was holding a previously scheduled meeting yesterday and also held committee meetings Monday.
Mr. Ferry declined to say what the board was discussing, but sources close to the company said board members were discussing the retailer's financial choices, including a bankruptcy filing.
"I think they are looking at their liquidity options, and their options of closing stores," said Marie Driscoll, an analyst at August Research, an independent investment firm.
Miss Driscoll and other analysts expect that Kmart, the nation's third-largest discounter behind Wal-Mart Stores Inc. and Target Corp., could close as many as 200 to 400 of its approximately 2,100 stores. A Chapter 11 filing for bankruptcy protection would make it less costly to extricate Kmart from the leases, they said.
Richard L. Church, an analyst at Salomon Smith Barney, said yesterday that it was lowering its risk rating on the Troy, Mich., retailer from "high" to "speculative," given the uncertainties surrounding the company's situation and outlook.
"While … we believe that Kmart has many options it can explore in order to meet its liquidity over the coming 12 to 18 months, other less quantifiable factors such as lack of vendor support have elevated Kmart's risk profile considerably more than we thought to be the case as recently as yesterday," Mr. Church wrote in a research report.
Also yesterday, Standard & Poor's, one of the nation's largest debt-rating agencies, lowered its credit rating on 14 Kmart-related credit-lease transactions and placed them on CreditWatch with negative implications.
S&P;'s reduced credit rating follows a series of downgrades over the past few days.
On Monday, S&P; lowered Kmart's corporate credit rating from a BB to a B- and its preferred stock rating from B to a CCC-.
It also said the retailer was on its list of companies to watch with negative implications.
It said those actions were based on heightened concerns about Kmart's loss of financial flexibility in recent weeks.
On Friday, Moody's Investors Service, the other major credit-rating service, had lowered Kmart's debt two notches deeper into junk status, citing the company's poor sales and doubts about its recent turnaround efforts.
Kmart officials said Jan. 10 that the company would not meet Wall Street's expectation for profits of one penny per share for fiscal 2001 based in part on disappointing holiday sales, and indicated it may seek additional financing.
Howard Nemiroff, a professor of finance at Long Island University, said unless Kmart can secure additional financing in the next few days, a Chapter 11 filing within the week is likely.
Mr. Nemiroff said, however, that the company's larger suppliers could help bail out Kmart by extending credit to the retailer.
"It's generally in the company's best interest to be flexible, because they want to keep their sales up," he said. "But they're not going to keep doing that if they think they're throwing their money down a pit."

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