Crown Books Files for Bankruptcy Again
John Mutter -- 2/19/01
Despite hopes to find investor or buyer, prospects look grim

In the biggest dislocation yet in this season of shakeouts in bookselling, Crown Books, once the third-largest bookstore chain in the U.S., filed for Chapter 11 bankruptcy protection last week, with K n Books and its claim of $2.5 million heading the list of unsecured creditors.

Best known as a discounter, Crown is no stranger to bankruptcy. It filed for Chapter 11 in July 1998, and emerged from bankruptcy only in November 1999. In its filing in federal bankruptcy court in Delaware, the company said it had assets of $75.2 million and debts of $58.9 million. Crown has more than 1,000 creditors, according to its filing.

CEO Charlie Cumello told PW that Crown "is pursuing every avenue we can to keep the company alive," and is looking for a "strategic investor or strategic buyer." He added that he wants to keep the company "a bookstore." But the mood in at least several SuperCrowns was grim. Employees at some stores were telling customers that the entire chain would soon be liquidated.

The move comes just two weeks after the chain announced it would close 28 of its 91 stores over the next two months. Cumello blamed the closings on disappointing holiday sales--sales at stores open at least a year declined 3%. Sources said that Crown has been experiencing a cash crunch following the acquisition of its primary lender, Paragon Capital, by Wells Fargo at the beginning of the year. Some industry observers also have speculated that with only 62 stores, Crown would not gain enough economic efficiencies to continue as a viable book discounter.

The rest of Crown's top 20 unsecured creditors are familiar book publishing and wholesaling firms. Among them are Ingram Book Co. ($1.5 million); Random House ($1 million); HarperCollins ($885,600); Simon & Schuster ($518,000); Holtzbrinck ($499,000); and Time Warner Trade Publishing ($359,000).

Crown has some 68 superstores and 23 smaller mall stores. Most of the stores being closed are in the Chicago area. Other stores to be shuttered are in the Los Angeles, San Francisco and Washington, D.C., markets.

As of last December, when it filed a registration statement with the Securities & Exchange Commission in a failed effort to go public again, one of Crown's largest creditors was Ingram Book Co., from which it bought almost all its books in the fiscal year ended January 31, 2000, and some 65% of its books in the six months ended July 29, 2000.

In the SEC filing, the company said it still had some problems with its management information systems. At the time, Crown had some 4.4 million shares outstanding, with 35% held by Shenkman Capital Management and 6.2% held by Cumello.