Korvettes Inc., the ailing discount chain that has been stonewalling its creditors for weeks, today agreed to pay $10 million of the $26 million it promised and $10 million more over the next two months.
The creditors will keep $6 million in Korvettes deposits that they seized last month after the discount chain's French parent killed an agreement that Korvettes negotiated with the lenders.
During weeks of protracted -- and sometimes heated -- negotiations, Korvettes' parent, the Agache-Willot Group of France, would set a date to pay the $26 million, then show up empty-handed. Korvettes also said it will pay another $2 million on jan. 2.
It first blamed its failure to pay on a misunderstanding with the banks, then on the French foreign exchange authority. Last Wednesday Agache-Willot said it had approval of the French government in hand and would pay the creditors the $26 million on tuesday.
Instead, negotiators for Korvettes and Agache-Willot showed up empty-handed again.
But after all-day negotiations today, the lenders agreed to take $10 million immediately, $5 million by mid-October and another $5 million by Nov. 15, and keep the $6 million they had in hand in seized deposits.
Korvettes owes three banks -- Chase Manhattan, Manufacturers Hanover and Bankers Trust -- and the Prudential Insurance Co. a total of $55 million. The creditors have agreed to accept $28 million and forgive the rest of the loan.
Korvettes has been closing stores in an attempt to become a profitable New York-area retailer rather than a nationwide chain that has been losing money for several years.
The company had 50 stores when Agache-Willot, which fancies itself a turnaround specialist, bought the chain for $31 million last year. Nearly 20 of those stores have been closed or are in the process of closing.
Agache-Willot said Tuesday in Paris that buying Korvettes was a mistake and that it wants to sell it. If the creditors had forced the chain into bankruptcy proceedings as they threatened to do. Agache-Willot might have had an even more difficult time selling the once-profitable pioneer of discounting that has fallen on hard times.
Many of Korvettes' suppliers are unwilling to ship merchandise to the stores because of the chain's failure to pay them. The chain has promised to pay off all its suppliers in cash.
But the protracted negotiations with the banks and the French parent's failures to pay as promised have made the supliers even edgier than they were before early August.
Agache-Willot had killed and agreement negotiated by Korvettes Chairman Joseph A. Ris that would have given the creditors about 45 cents on the dollar plus a share in Korvettes' future profits. Ris resigned after that but was enticed back to the company several days later. Korvettes explained on Aug. 12, the day Ris returned, that his resignation was due to a "misunderstanding."
After Agache-Willot scuttled the original agreement, the three banks taking legal action against the chain when Ris was rehired. Ris then negotiated a $28 million payment, with $26 million due on Aug. 23 and the rest on Jan. 2. But Agache-Willot continued to show up at scheduled meetings without any money until today.
Although the bankers are less than happy with the final settlement -- and privately say they fear they may face the same stonewalling when the two $5 million payments are due in October and November -- sources said the banks felt today's settlement was the best they could get without a lengthy and expensive court fight in which the lenders would be one of dozens of Korvettes' creditors with claims against the company.