Boscov's gets $35 million loan from Pa.

"We took this step because of the extraordinary reach Boscov's has in Pennsylvania," Gov. Rendell said.
"We took this step because of the extraordinary reach Boscov's has in Pennsylvania," Gov. Rendell said.
Posted: November 21, 2008

HARRISBURG - Gov. Rendell announced yesterday that he had arranged $35 million in state-backed federal loans to help the struggling Boscov's department-store chain emerge from bankruptcy and to protect 5,000 Pennsylvania jobs.

"We took this step because of the extraordinary reach Boscov's has in Pennsylvania," Rendell said at a Capitol news conference. "It would be devastating for the state of Pennsylvania to lose Boscov's."

Meanwhile, attorneys and officials with the Reading-based chain prepared for a major hearing today in U.S. Bankruptcy Court in Wilmington. Judge Kevin Gross was expected to rule on a request to approve the sale of the company to Albert R. Boscov in a deal valued at about $300 million. Boscov, 79, is the son of Solomon Boscov, who founded the company 97 years ago in Reading.

Some view the loan guarantees from the U.S. Department of Housing and Urban Development as the missing piece to the financing puzzle for Boscov's. The buyout, said a source familiar with the deal, "wouldn't be possible without" the state aid.

The bid, if approved, would return control of the chain to the Boscov family.

Ever since the company filed for Chapter 11 bankruptcy protection Aug. 4, Boscov had been working furiously to patch together the elements of a successful bid. He had retired from the company in 2006.

His efforts were made all the more difficult with the stock market meltdown in mid-September, which dried up new financing from the credit markets.

Boscov cobbled together an offer valued at $275 million to $300 million, and he said this week that $100 million of that was cash from friends and family members who have signed on as investors. His offer has the support of the banks and unsecured creditors to whom the company owes millions, including The Inquirer.

Boscov asked the Rendell administration for help about a month ago, and the loans are contingent on the chain's emerging from bankruptcy protection. If the chain is later forced to liquidate, the loans will be repaid through inventory and real estate, Rendell said, adding, "There is very little risk to the commonwealth."

Larger cities get their own HUD financing, said Rendell, adding that as mayor of Philadelphia he provided $355 million of the city's HUD allotment to guarantee loans to developers.

The money going to Boscov's comes from a separate pool of HUD financing for Pennsylvania.

Additionally, Scranton and Wilkes-Barre have each put up $3 million of their HUD guarantees for Boscov's, Rendell said.

State Sen. Robert Mellow (D., Lackawanna), who represents Scranton, where a Boscov's store anchors the downtown, helped negotiate the loan guarantees.

"We give a lot of money to start-ups to create jobs. This maintains 5,000 jobs," Mellow said. "It is very important to do."

By helping Boscov's emerge from bankruptcy, the state also ensures that large shopping malls keep the chain as a paying tenant and avoid vacant stores when consumer spending has plummeted.

The fate of Boscov's has been a topic of corporate earnings calls between analysts and one of the region's biggest mall owners, the Pennsylvania Real Estate Investment Trust, a Philadelphia company run by Rendell's close friend Ronald Rubin.

Anticipating reporters' questions, Rendell acknowledged that Albert Boscov had been a major campaign donor dating to his 2002 gubernatorial bid. State campaign expense reports show that over the last six years, Boscov has given nearly $129,000 to Rendell's campaign fund.

The governor said the loan guarantees were "in no way, shape or form a political payback."

He said he had the former and current top official of the state Department of Community and Economic Development determine if the aid was warranted. Both did, he added.

John Blake, the state's acting secretary of community and economic development, said he hesitated to call the Boscov's assistance a bailout.

"We are not rewarding bad behavior," Blake said. "The lasting impact of Boscov's going dark would be significant."


 

Read more about the Boscov's bankruptcy at


Contact staff writer Mario F. Cattabiani at 717-787-5990 or mcattabiani@phillynews.com.

Inquirer staff writer Amy Worden contributed to this article.

comments powered by Disqus
|
|
|
|
|