Circuit City Files for Bankruptcy

New York City Circuit City Stores filed for bankruptcy protection on Monday, becoming the largest retailer to file under Chapter 11 this year. The company plans to stay open for business as the critical holiday shopping season approaches.

Circuit City, which has had only one profitable quarter in the past year, has faced significant declines in traffic and heightened competition from rival Best Buy Co. and others. It said it decided to file for bankruptcy protection because it was facing pressure from vendors who threatened to withhold products during the holiday season.

Circuit City also said it would cut 700 more jobs, after announcing a week ago that it would close 20 percent of its stores and lay off thousands of workers.

In a court filing on Monday, CFO Bruce Besanko said the retailer filed for Chapter 11 in order to continue its turnaround efforts.

"In large part, a Chapter 11 filing is due to three factors, all of which contributed to a liquidity crisis that prevented the company from completing its turnaround goals outside of formal proceedings: erosion of vendor confidence, decreased liquidity and a global economic crisis," Besanko said.

According to the filing, Circuit City had $3.4 billion of assets and $2.32 billion of debt as of Aug. 31, and more than 100,000 creditors. Its biggest creditors are its vendors: Hewlett-Packard has a $118.8 million claim followed by Samsung ($115.9 million), Sony ($60 million), Zenith ($41.2 million), Toshiba ($17.9 million) and others. Smaller creditors include GPS navigation system maker Garmin, Nikon, Lenovo, Eastman Kodak and Mitsubishi.

The company has arranged a commitment for debtor-in-possession financing of $1.1 billion, which will allow it to continue to operate during the bankruptcy proceeding.