The following quote refers to the problems of Campeau Corporation, a Canadian-based retail empire that later declared bankruptcy. At the time, campeau’s department store chains included Bloomingdale’s, Rich’s, Burdines, Abraham & Strauss, and Lazarus.
Campeau Corp.’s announcement Friday that its bankers believe it has technically defaulted on $2.34 billion in debt probably will freeze new spring shipments, apparel makers say. Citibank, leader of the bank syndicate providing much of Campeau’s debt financing, informed campeau by letter last week that Campeau had biolated certain covenants on debt and unless Cammpeau can remedy the default by December 31, Citibank stated it may demand full repayment of the loans.
REQUIRED:
a. What is a “technical default,” and how did Citibank react to it?
b. Explain why apparel makers might “freeze new shipments” and why this presented great problems for the Campeau organization