Bankruptcy judge approves $1.1 billion in financing for Circuit City

RICHMOND, Va. -- Circuit City Stores Inc. on Monday received final approval for $1.1 billion in financing to keep operating while the nation's second-biggest electronics retailer is in Chapter 11 bankruptcy protection.

U.S. Bankruptcy Judge Kevin Huennekens approved the debtor-in-possession loans at a hearing in Richmond. The financing, which replaces a $1.3 billion asset-backed loan the company had been using, will be used to stock merchandise and pay employees.

Richmond, Va.-based Circuit City filed for bankruptcy protection last month as it faced pressure from vendors and consumers who aren't spending. Its Canadian operations filed for similar protection.

Gregg Galardi, an attorney for Circuit City, said that since filing for bankruptcy, the company's sales have been hurt by the weak consumer spending environment and are down between 40 percent and 50 percent.

Galardi called the financing and restructuring efforts a "bridge to somewhere" and said the company is still pursuing the sale of all of its assets.

Circuit City, which has posted losses for seven of the last eight quarters, plans to keep operating while it develops a reorganization plan to deal with significant declines in traffic and heightened competition from rival Best Buy Co. and others.

The judge also approved a motion to void severance agreements with about 40 former employees, including Philip Schoonover, who stepped down as chairman, president and chief executive in September. Several details under the motion must still be resolved, including whether some of the employees could seek to be paid when the retailer emerges from bankruptcy.

Circuit City also was able to break service agreements with Google Inc. and National Service Alliance Inc., and hotel reservation contracts with the MGM Grand in Las Vegas and The Jefferson Hotel in Richmond.

The company, which said it had $3.4 billion in assets and $2.32 billion in liabilities as of Aug. 31, hopes to emerge from court protection in the first half of next year.

At that point, it could seek a buyer or operate on its own again.