Under other circumstances, the vicissitudes of the sneaker business might have been less critical to Interco Inc.'s future.

Interco owns Converse, the maker of the classic high-top canvas basketball shoe. But tastes change in the fickle world of athletic footwear, and these days high-tech, lower-cut leather shoes from companies like Nike, Reebok and L.A. Gear are more in style.

That has hurt Converse's business, and Interco's bottom line, at a time when the St. Louis-based conglomerate could afford it least.

Interco is suffocating under a gigantic debt load as the result of a 1988 financial makeover that thwarted a takeover threat from Washington's Rales brothers. And in part because of the problems at Converse and its other divisions, which include Florsheim shoes and Broyhill and Lane furniture, the company has stopped making some interest payments on its $1.9 billion debt and is facing a possible bankruptcy filing -- another victim of the high-debt financing binge of the late 1980s.

Like Campeau Corp., Southland Corp. and other debt-heavy acquisitions, restructurings and buyouts that have skirted or fallen into bankruptcy in the past couple of years, Interco has discovered how thin the margin of error can be for a company operating atop a mountain of debt.

Unable to get the prices for businesses it had hoped to sell after loading up on debt, and faced with operating problems in most of its divisions, Interco is frantically lobbying its banks and other lenders for a major financial restructuring that would give it breathing room. The alternative, the company said last week, is a Chapter 11 bankruptcy filing.

"The basic fact is that Interco's four basic core operations {Converse, Florsheim, Broyhill and Lane} cannot sustain the current debt burden, and that's been clear for a while now," said William K. Mendenhall, an analyst for Moody's Investors Service Inc.

"They put too much debt on the books and couldn't sell assets at good prices," said Craig Davis, an analyst at R.D. Smith & Co., a New York brokerage specializing in troubled companies.

Interco's problems are best illustrated by a quick glance at its balance sheet. In the two years since its financial makeover, the company's debt has jumped to $1.9 billion from $341.5 million and its annual interest expense has soared to $303.1 million from $29.2 million. Key measures of financial health -- earnings, working capital and shareholder equity -- have gone from strongly positive to sharply negative.

Most striking, perhaps, is the change in the company's stock price. From a high of $73.62 1/2 a share at the height of the takeover battle with the Rales brothers in late 1988, Interco stock has plummeted to just 34 cents as of yesterday, although shareholders were paid a $38.60-a-share one-time dividend as part of the takeover defense.

Bonds issued to shareholders also are trading at a fraction of their face value, and analysts say the total value of the cash, bond and stock package given shareholders in 1988 is only around $50 a share -- well below the $76 a share promised by management and the $74 in cash offered by the Raleses in their takeover bid.

Interco was a fairly stodgy, traditionally financed company when the Raleses launched their takeover bid in 1988. In addition to its four remaining divisions, it also owned the London Fog raincoat brand and the Ethan Allen furniture business, among others.

To Steven and Mitchell Rales, whose Washington-based Danaher Corp. has specialized in buying manufacturing companies and turning them around through streamlining and operating efficiencies, Interco seemed an undervalued opportunity. But management didn't want to sell to the Raleses, and instead engineered the $2.8 billion recapitalization, which sent the Raleses packing with a roughly $75 million profit on their 8.3 percent.

The Rales brothers -- who now decline to comment on Interco -- may be about the only ones to have benefited from the recapitalization.

Cracks began showing almost from the start, with Wall Street questioning the actual value of the recapitalization package and the newly issued bonds trading at first slightly and then sharply below face value.

The company also discovered the realities of its plan to sell assets to raise money to pay down the debt. In the increasingly unsavory junk bond market, potential buyers had trouble raising funds to pay for the assets Interco wanted to sell, and some of the businesses on the block turned out to be less attractive than they first appeared.

With results from the remaining divisions suffering despite an aggressive cost-cutting campaign, that made it increasingly difficult for the company to keep up with its debt payments, culminating in the postponement of a $300.9 million payment due this month. The company also has said it will not make an interest payment due June 15.

In an effort to solve the company's financial problems, Interco officials last week proposed another financial restructuring, one that would exchange huge amounts of common stock for debt to reduce the company's interest obligations and give it some breathing room.

"The company believes that, in the absence of the restructuring, its debt and cash interest obligations would increase substantially over the next several years and would be more than the company could adequately service," Interco said in a filing with the Securities and Exchange Commission last week.

Analysts, however, are skeptical that Interco's lenders will accept the restructuring offer, at least as currently constituted.

"Giving the bondholders equity doesn't give them very much," said Andrew J. Herenstein, an analyst at Delaware Bay Co., a New York securities firm. "From a bondholder's perspective ... maybe he's better off putting the company into bankruptcy."

That, according to the company, would be the alternative to the proposed restructuring. In its SEC filing, Interco included a detailed bankruptcy reorganization plan. But the company said it would prefer a non-bankruptcy restructuring, and warns that there's a third option: a bankruptcy filing unaccompanied by a prepackaged reorganization plan. In that case, the company's lenders and other creditors would fight it out over Interco's remains.

Analysts say they believe that most lenders would like to avoid bankruptcy of any kind, and they say that while the restructuring plan being proposed by Interco probably is not ideal, it may form the basis for negotiations over a plan acceptable to the company's banks and bondholders.

"I think bankruptcy is always a bad thing, and I think people don't appreciate the destructive nature of bankruptcy as well as they should," Davis said. "The only way to get this done out of bankruptcy ... is from compromise on all sides."