Few White Knights Emerge for Bankrupt Retailers

"For retailers, bankruptcy is like a roach motel -- they can go in, but they won't come out," said Evan Flaschen, chair of the Financial Restructuring Group at Bracewell & Giuliani LLP. "There are very few people buying these businesses in order to reorganize them. The people who want to buy them now are the ones most realistic about the liquidation value," Flaschen said.

While retailers like Federated, Macy's and Kmart were able to reorganize or sell themselves in bankruptcy in decades past, recent attempts to sell bankrupt retailers at auctions have met financing difficulties, wavering buyers, uncertain economic conditions and weak support from critical suppliers.

Deals to rescue retailers Goody's Family Clothing, Steve & Barry's and Tweeter ended in liquidation after a second trip to bankruptcy court. And even the buyers of Boscov's Inc -- one of the only major retailers to successfully sell itself in Chapter 11 last year -- struggled to line up financing in the days before the deal closed.

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