NEW YORK -- Shares of Merry-Go-Round Enterprises Inc. retreated yesterday after more than doubling over the past week in an inexplicable surge.
Merry-Go-Round, a specialty-store retailer, has tantalized Wall Street since late November with speculation over whether it will file for bankruptcy protection.
After hitting a low of $1.50 on Dec. 21, the company's shares surged, to close at $3.75 Tuesday, even though a company spokeswoman has said repeatedly that there was no news fueling the rise. But yesterday the stock fell 75 cents, to close at $3 on the New York Stock Exchange.
Analysts said two sell orders of 100,000 shares each late in the trading session contributed to the stock's slide. They said the heavy trading earlier this week had been propelled by rumors of an impending breakthrough in negotiations with lenders.
One theory floating around the stock market was that because Merry-Go-Round has staved off bankruptcy this long, its chances of negotiating a loan with its lenders must be improving. Company executives were said to have negotiated throughout the holiday weekend with the banks and insurance companies that control its loan.
Another theory suggests that Merry-Go-Round is about to find a new lender to replace the one bank in its group of eight lenders that is demanding that it collateralize its inventory, a condition the retailer cannot agree to without alienating its creditors in the garment industry.
The company would not comment on the speculation. Last week, it issued a statement saying it would have to file for bankruptcy protection if it could not reach a new loan agreement with its lenders.
The company has managed to secure at least some spring shipments from apparel manufacturers, which had been holding up shipments on the advice of factoring companies and credit agencies, because it is offering to issue letters of credit for new goods, people in the garment industry said yesterday.
Factoring companies guarantee receivables for manufacturers in exchange for a small percentage of the payment. Manufacturers can continue to draw against a letter of credit after a company enters bankruptcy protection.
If the company cannot get enough merchandise to stock its 1,450 stores, which include the Merry-Go-Round, Attiva and Cignal chains, it might be forced into bankruptcy protection.