Hess Shoes parent files for bankruptcy Company to keep doing business


N. Hess' Sons Inc., which operates the Hess Shoes chain, said yesterday that it has filed for Chapter 11 bankruptcy protection to restructure its retail shoe business, which has been hurt by the recession.

But the 120-year-old company said it would continue business as usual.

"We are extremely viable," said George H. Bernstein Jr., president and chief executive officer of Hess, noting that the company does not expect any financing problems for the next 30 days or more.

"Chapter 11 sounds ugly, but it is something that will make us healthier," he said.

Mr. Bernstein said the company, a subsidiary of a German company, has had two or three "disappointing years." But he stressed that the company has no secured creditors and that many of the suppliers have already agreed to continue shipments on credit. The suppliers "believe in the company, and they will go along," he said.

The company is also helped because it is in the part of the business cycle when it is selling merchandise rather than buying it, reducing the company's need for credit, he said.

There are no plans for immediate layoffs, and no decisions have been made on store closings, Mr. Bernstein said.

The filing was triggered when one of Hess' banks tightened its lending requirements and reduced the funds available to the company, even though Hess never missed a principal or interest payment, he said.

Without identifying it, Mr. Bernstein said the bank "got very nervous" and wanted collateral to secure some of the debt. That would have hurt the company's relationship with other creditors, he said.

Mr. Bernstein declined to comment further on the banking situation. "We're not going to stir up the waters any more than they are stirred up," he said.

The only two banks listed as major unsecured creditors in the Chapter 11 filing in U.S. Bankruptcy Court in Baltimore were the Bank of Baltimore, which is owed $2.6 million, and Philadelphia National Bank, which is owed $1.2 million.

George B. Hess Jr., Hess' president until 1986 and a current board member, is a former director of Baltimore Bancorp, the parent company of the Bank of Baltimore. He was among a number of directors defeated in a proxy fight last year waged by Edwin F. Hale Sr., who is now chairman of the bank holding company.

David L. Spilman, treasurer for the Bank of Baltimore, declined to comment on N. Hess' Sons, saying the bank does not discuss its relationship with borrowers. "We are sorry to see any of our borrowers in bankruptcy, but we ultimately expect to be repaid in full," he said.

Philadelphia National Bank officials could not be reached for comment.

Hess has 28 stores, which sell men's, women's and children's shoes and accessories. The company's stores at Towson Town Center and at Belvedere Square also feature "Snipperies," hair-cutting services geared to children.

There are 20 stores in the Baltimore area, six in the Washington area, one in Richmond, Va., and one in the Raleigh-Durham, N.C., area. Of the company's 200 workers, 150 are in the Baltimore area.

The company, which was founded in Baltimore in 1872, was sold in 1978 to Gortz Beteiligungsgesellschaft MBH, a German retail shoe company based in Hamburg.

The Chapter 11 bankruptcy filing said the company had assets of $8.5 million as of March 28 and liabilities of $6.8 million.

Hess rents all of its stores and office space, said Nancy V. Alquist, the bankruptcy attorney representing Hess.

Chapter 11 bankruptcy, which protects companies from creditors while they reorganize, has been used increasingly by businesses faced with mounting debt, large judgments or labor problems.

Mr. Bernstein said the filing will allow the company to renegotiate leases for stores that are not doing well and to quickly implement new marketing strategies.

One of the new marketing efforts will be the introduction this summer and fall of new brands of shoes that will be sold exclusively at Hess.

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