Kmart disclosure statement approved by court

By Carlise Newman

Chicago, Feb. 26 - Kmart announced that the U.S. Bankruptcy Court for the Northern District of Illinois approved the disclosure statement filed in connection with its reorganization plan, keeping the company on schedule to emerge from Chapter 11 protection by April 30.

A confirmation hearing for court approval of the plan is scheduled for April 14 and 15.

In a court hearing Tuesday, the bankruptcy court also authorized the company to seek approval from its creditors for its amended reorganization plan. The voting and objection deadline for the plan is April 4.

The reorganization plan calls for a substantial investment by ESL Investments Inc. and Third Avenue Value Fund of at $140 million in exchange for shares of stock in the reorganized Kmart. Kmart also has a call right for up to an additional $60 million of convertible unsecured note financing from ESL Investments. Furthermore, ESL has agreed that the cash that it would receive under the plan of reorganization as a holder of approximately $380 million of pre-petition bank debt will be used to purchase additional equity.

Other details of the plan include:

* Holders of Kmart's prepetition bank debt (other than ESL) will receive 40 cents for each dollar of debt they hold;

* Holders of prepetition notes and debentures issued by Kmart and trade creditors, service providers and landlords with lease rejection claims will share in the stock of reorganized Kmart, other than the shares allocated to the plan investors;

* Holders of prepetition notes and debentures will receive 29% of the stock of reorganized Kmart to be outstanding immediately following the effective date of the plan; and

* Trade creditors, service providers and landlords with lease rejection claims will receive approximately 37% of the stock.

The amended disclosure statement contains a number of revisions and additions to the document filed in January. Among other items, it provides an update of the stewardship review, being conducted by the audit committee of the Kmart Board of Directors.

"Our momentum continues to build as we move ever closer to concluding our reorganization and emerging from Chapter 11 in a stronger and more financially stable position. We are very pleased to have received the support of our statutory creditors' committees, the plan investors and the prepetition banks for our amended plan of reorganization," said Julian Day, Kmart president and chief executive officer, in a news release.

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