DETROIT (AP) Stock 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.
Standard & Poor”s, one of the nation”s largest debt rating agencies, announced that it will take the retailer off its 500 index after the close of trading today.
David Blitzer, the managing director of quantitative services for S&P, said Kmart was removed “because of its low stock price and the company”s financial instability.”
Shortly after the market opened yesterday, the stock dropped to a new 52-week low of $2.29 from Monday”s closing price of $2.84 but rebounded to $2.45 at the close of yesterday”s trading.
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.
Ferry declined to say what the board was discussing at the meetings, but sources close to the company said the board would be discussing its financial options, including a bankruptcy filing.
Richard Church, an analyst at Salomon Smith Barney, said yesterday that it was lowering its risk rating on the Troy-based 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,” Church wrote in a research report.
S&P also lowered the retailer”s credit rating on 14 Kmart-related credit lease transactions and placed it on CreditWatch with negative implications.
S&P on Monday lowered Kmart”s corporate credit rating from a BB to a B- and its preferred stock rating drop 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.
The illustrious retailer has about 275,000 employees and 2,105 stores in all 50 states, Puerto Rico, U.S. Virgin Islands and Guam. It is the nation”s third-largest discount retailer after Wal-Mart Stores Inc. and Target Corp.
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 bankruptcy filing within the week is likely.
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.”
Adam Winters, senior vice president of Merchants Factors Corp., which provides loans to small and midsize apparel companies, said that Kmart has been slower in paying its vendors since November, though not “terribly late.” He added that instead of paying them 10 to 15 days late, Kmart is now paying them 20 days late.