Circuit City Files Chapter 11

It shouldn't have come as a surprise: Circuit City has been struggling for some time, and just last week it announced it was closing 155 stores and laying off thousands. On Monday, it announced it had entered Chapter 11 bankruptcy protection, which would allow it to continue operating its stores through the all-important holiday season.

Chapter 11 bankruptcy protection allows a company to continue operating, holding off creditors while it attempts to restructure its finances. In a press release announcing the move, Circuit City said:

In addition, Circuit City has negotiated a commitment for a $1.1 billion debtor-in-possession (DIP) revolving credit facility to supplement its working capital. The DIP facility replaces the company's $1.3 billion asset-based credit facility and is being provided by the same lenders. The facility provides additional immediate liquidity while the company works to reorganize the business and will permit the company to pay vendors and other business partners for goods and services received after the filing.

In relation to this new "credit line," James A. Marcum, vice chairman and acting president and chief executive officer of Circuit City Stores, Inc., said:

"We appreciate the support we have received from our lenders in the midst of such a tight credit market. With this support, we believe we have the opportunity to leverage our market position and the strength of our brand to restore Circuit City to solid financial footing."

Even give this, most analysts look askance at Circuit City's chances. While it remains the second largest consumer electronics retailer after Best Buy, it's facing the prospects of a dismal holiday season as U.S. consumers face the economic crisis, and it also has been threatened with delisting from the NYSE as its shares fell below $1.

On Monday, Circuit City's shares fell $0.15 to $0.10 / share, as investors showed little confidence the retailer could make it back to profitability.