Dawnay Day portfolio company files for insolvency

German department store chain Hertie is on the brink of collapse after failing to raise cash in crisis talks with banks over the past several weeks.

Hertie, a well-known German department store chain owned by beleaguered investment bank and property group Dawnay Day, has filed for insolvency. The filing comes after week in which the chain failed to obtain financing from German banks.

Dawnay Day bought the chain from Arcandor, formerly known as KarstadtQuelle, for about €500 million in 2005. Earlier this year the stores posted a full-year 2007 loss of about €30 million, with sales slipping by 5.2 percent to €540 million. This prompted German media to report that Dawnay Day was looking to sell the loss-making stores.

Hertie operates 72 stores and employs more than 4,000 people. The chain said it is hoping to continue operating while it looks for a way to solve its current cash woes. Dawnay Day had no immediate comment on the filing.

The insolvency is the latest disaster for the Dawnay Day Group, which has run into problems stemming from the credit crunch, failing to raise fresh finance while struggling to meet margins calls from its lenders. Earlier this week, it was revealed that receivers had been appointed at two Dawnay Day companies, Dawnay Day Properties and Dawnay Day International. At the same time, two property companies taken onto London’s Alternative Investment Market have announced they are severing ties with the Dawnay Day Group.

It also emerged today that Dawnay Day Treveria, one of three property companies that Dawnay Day took onto London’s Alternative Investment Market, leases five properties either wholly or partly to Hertie.