| To: redfish who wrote (938) | 3/25/2005 7:57:13 PM | | From: Jon Koplik | | | | WSJ's version : Krispy Kreme In Talks With New Lending Group ..................
March 25, 2005 3:19 p.m.
Krispy Kreme In Talks With New Lending Group
By Mary Ellen Lloyd
Of DOW JONES NEWSWIRES
CHARLOTTE -- Krispy Kreme Doughnuts Inc. (KKD) dodged a default on its $150 million credit facility Friday and said it is in talks with new lenders.
Lenders extended the financially troubled doughnut maker's deadline to April 11 for filing overdue financial statements in order to avoid a default, Krispy Kreme said in a press release. The latest extension had been through Friday.
"The company is currently negotiating with a new lending group to obtain new credit facilities the proceeds of which would be used to repay in full the lenders under its current credit facility and for general corporate purposes," Krispy Kreme said. "There can be no assurance that such new credit facilities can be obtained."
Company representatives weren't immediately available for comment on the new lending group or on terms of the extension with current lenders, which include Wachovia Corp. (WB), BB&T Corp. (BBT), Bank of America Corp. (BAC) and Royal Bank of Canada (RY).
But the banks in January had restricted borrowing by Krispy Kreme, which owed more than $90 million under the agreement as of Oct. 31. The Winston-Salem, N.C., company in February warned it would need additional financing by Friday to fund operations and capital spending. Its press release made no mention of interim financing.
"As long as they can keep the wolves outside the door, not inside the door, it still gives them hope," said Howard Silverstone, a Marlton, N.J., forensic accountant and consultant who has done financial due-diligence work.
Still, the largest remaining question remains how Krispy Kreme is going to turn around its financial and legal troubles, he said. "At the end of the day, they're still going to owe someone and they're still going to have to get themselves out of the hole," he said.
Krispy Kreme's once high-flying stock has dropped sharply over the last year amid deteriorating results and multiple investigations and lawsuits.
The company about 140 stores when it held one of the most successful initial public offerings of 2000. Shares hit an all-time high of $49.74 in August 2003 as the company marched toward having "Hot Doughnuts Now" signs in 500 outlets.
But shares have fallen 72% since Krispy Kreme issued a profit warning in May, saying low-carb diets were hurting sales. Shares closed Thursday ahead of the holiday weekend at $8.76.
The company's accounting methods, its financial guidance and its recent franchise acquisitions are among issues under scrutiny in multiple shareholder lawsuits, a probe by the Securities and Exchange Commission and, more recently, an investigation by the U.S. Attorney in the Southern District of New York. That is the same prosecutor's office that has handled such high-profile white-collar crime cases as the convictions of Martha Stewart and former WorldCom chief Bernard Ebbers.
Krispy Kreme has said it plans to restate results from the fiscal year ended Feb. 1, 2004, and from the first two quarters of fiscal 2005. It also pulled back on expansion, sold its corporate jet and began shuttering some of its more than 400 stores.
Earlier this week, Krispy Kreme confirmed it had scrapped a test program with Wal-Mart Stores Inc. (WMT) to operate in-store doughnut bakeries. A spokeswoman said the companies decided the concept wasn't viable, adding the move was unrelated to Krispy Kreme's financial situation.
Silverstone isn't working with any parties related to Krispy Kreme but was formerly employed by risk consultant Kroll Inc. at the same time as Krispy Kreme's current chief executive, Stephen Cooper.
He suspects the new lenders have been talking with Krispy Kreme awhile. The two-week extension could mean lenders simply need more time to review any turnaround plan, or it could mean Krispy Kreme hasn't yet secured a commitment for the entire amount it needs, Silverstone said.
Corporate Web site: krispykreme.com
-By Mary Ellen Lloyd, Dow Jones Newswires; 704-371-4033; maryellen.lloyd@dowjones.com
Copyright © 2005 Dow Jones & Company, Inc. All Rights Reserved. |
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| To: Jon Koplik who wrote (939) | 3/28/2005 9:59:04 AM | | From: redfish | | | | Interesting how KKD is reacting this morning, the news release doesn't seem to have created much buy interest.
Imo the financials are as much a concern as the liquidity problem, investors are in the dark about the company. Which is an accurate reflection of its profitability, 2000, 2002, or 2004? Nobody knows. |
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| To: redfish who wrote (940) | 3/28/2005 2:28:42 PM | | From: Jon Koplik | | | | WSJ -- Krispy Kreme Nears a Deal For $225 Million in Financing ...............
March 28, 2005 1:31 p.m.
Krispy Kreme Nears a Deal For $225 Million in Financing
By MARK MAREMONT
Staff Reporter of THE WALL STREET JOURNAL
Krispy Kreme Doughnuts Inc. is close to an agreement to secure $225 million in new financing from a group that includes Silver Point Capital LP and Credit Suisse First Boston, according to a person close to the situation.
An announcement on any deal could come as soon as this week, this person said.
Silver Point, Greenwich, Conn., is one of a number of hedge funds that lend money to companies in distress, typically with senior debt that is secured and ranks above others if the borrower ends up filing for bankruptcy protection. In regulatory filings, it lists two of its partners as Edward A. Mule and Robert J. O'Shea.
Spokespeople for Silver Point and CSFB said they had no immediate comment.
Krispy Kreme on Friday said its existing lenders had agreed to extend to April 11 a deadline for filing overdue financial statements. It also said it was in talks with an unnamed new lending group to secure funds to repay the old lending consortium, but cautioned there could be no assurance it would secure the new financing.
Krispy Kreme, based in Winston-Salem, N.C., has been unable to file financial statements for the quarter ended Oct. 31, 2004, putting in it into technical default on a $150 million credit line from its banks, which include Wachovia Corp., B&T Corp., Bank of America Corp. and Royal Bank of Canada.
News of the proposed new lending arrangement involving Silver Point and CSFB was first reported by Debtwire, a news service that focuses on distressed and high-yield debt.
Although a new lending agreement could help Krispy Kreme's liquidity, its long-term future remains murky. Once a high-flier, the doughnut retailer has been struggling in recent months with slowing sales, restive franchisees and multiple probes into its accounting practices. The company in January ousted its longtime chief executive, Scott Livengood, replacing him with Stephen F. Cooper, a restructuring expert who also serves as acting CEO of Enron Corp.
Some troubled companies in which Silver Point has been involved later filed for bankruptcy protection, including Tower Automotive Inc. (See correction below.)
In addition to paying off its existing bank line, Krispy Kreme said it plans to use its proposed new financing for "general corporate purposes." It didn't specify those, but the company is likely to shrink from its current base of about 400 stores, and faces the need to pay off costly leases that it took on during its aggressive expansion.
Write to Mark Maremont at mark.maremont@wsj.com
Corrections & Amplifications:
Silver Point Capital LP bought Tower Automotive debt in the secondary market before that company filed for bankruptcy protection, according to a spokeswoman for Silver Point. An earlier version of this story wrongly implied that Silver Point lent money to Tower ahead of its bankruptcy.
Copyright © 2005 Dow Jones & Company, Inc. All Rights Reserved. |
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| To: Jon Koplik who wrote (941) | 3/28/2005 2:50:07 PM | | From: redfish | | | | Doughnut holes: Rumors that Krispy Kreme (KKD: news, chart, profile) is close to lining up $225 million in financing caused its stock, which was slumping Monday morning, to manage a meager (albeit brief) turnaround.
On Friday the company said its lenders had agreed to extend, yet again, the deadline for the company to produce its long-delayed annual financial results. Just why the stock would rise on that news is anybody's guess.
Think about it this way: Why aren't the bankers, who know the company best, stepping up? And if they're not willing to lend, why should investors take a leap of faith on the stock, which comes last in line for having any claim on the company?
Any private lenders at this point are likely to be investors who specialize in taking chances on the debt secured against assets - not the stock. There's no doubt Krispy Kreme the brand has value and will survive.
But that doesn't guarantee its existing stock will, especially based on information disclosed so far. "Specifically," says money manager Eric Von der Porten of Leeward Investments, who owns puts and calls on Krispy Kreme's stock, "the November and December sales information indicates that company store sales could be approximately $51,800 per week - and on a downward slope. Analysis of the historical results suggests that breakeven should be about $51,300 per week. If this is accurate, contribution from the company stores may be near zero, down from more than $7 million per month just a year ago. With franchise stores already operating at les than $50,000 per week, the outlook for store profitability appears poor."
To quote the headline on a weekend editorial from the Los Angeles Times: "A sticky mess."
marketwatch.com
yhoo&siteid=yhoo&dist=yhoo&guid=%7B09640E1C%2D5CE4%2D48B7%2DBB40%2D9524D63E7C63%7D |
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| From: chezloch | 3/30/2005 2:55:38 PM | | | | | | Everything points to a buy now. IMO this is a great long trade. I love to scoop stuff off the floorboards and watch it fly again.
In the near term, there is anticipation of the debt financing announcement, which will draw the stock upwards, then you have a turn-around specialist running the company for long term results.
I like it...
Chezloch |
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| From: redfish | 3/30/2005 3:23:07 PM | | | | | | Motley Fool
Krispy Kreme: Spit It Out
Wednesday March 30, 11:59 am ET
By Bill Mann
Yesterday, The Motley Fool ran an article asking a not-so-rhetorical question: Is Krispy Kreme (NYSE: KKD - News) at a price that makes it an attractive investment?
The author concluded that since the company is going through some cost-cutting and has new management and a new strategy, it "looks like an excellent value pick." In fairness, the author also noted that Krispy Kreme was nowhere near the point of being out of the woods, so the ride is going to be volatile.
To which I reply, "Yeah, volatile like a bullet train to hell."
In other words, I come to a slightly divergent conclusion. I thought last year that Krispy Kreme's fair value was, if the worst would come to pass, zero. Well, we haven't hit the worst case, but we're pretty close. And one thing I hadn't counted on at the time would be that Krispy Kreme would fall out of covenant with its lenders, or that its company stores (the ones owned by the company instead of by franchisees) would do so poorly.
If Krispy Kreme stock were a doughnut variety, I think it would be something like "powdered mutton-filled," or "sweat-glazed." Not attractive. Purge-worthy. This is a company in big trouble. And while it has new management to take over for the (insert your negative adjective here) former CEO Scott Livengood, the group headed by Scott Cooper has been dealt such a raw hand that my own analysis tells me that they're going to be able to restructure the company mainly in the friendly confines of Chapter 11 bankruptcy protection. Krispy Kreme the brand will be fine. The company may eventually succeed in a scaled-back fashion. The common stock? Check for spoilage.
Let's get to the heart of why I believe nearly any price -- much less a $9 level that puts its equity at a value of $550 million -- is too much to pay for Krispy Kreme stock. I hate to disparage the analysis of a colleague in the process, but I'm afraid that I can't let some of these assumptions go unaddressed. What we have in Krispy Kreme is a company that, as of this moment, produces close to zero earnings on a company-store level, currently needs hundreds of millions in financing to remain afloat, and is not in covenant with the Securities and Exchange Commission.
For whatever reasons, two recent rumors have caused Krispy Kreme shares to spike. The first was a tale traders began circulating that Warren Buffett was buying equity. The second rumor was that Krispy Kreme was close to securing $225 million in financing from Credit Suisse First Boston (NYSE: CSR - News). Hold this particular thought, as it's important.
Reduction of debt? How?
One of the big memes in the thesis that Krispy Kreme can get back onto its feet, providing a good risk/reward from here, is that the company can lower its debt levels by letting some franchises wither on the vine. I think this is a pipe dream. First and foremost, if we're talking about bringing a company back to health, and it is a franchisor, we have to talk about bringing the entire Krispy Kreme ecosystem back to health. What happens if we let a few of the franchises fail? My calculations show that Krispy Kreme the mother ship has guarantees on about $24 million in franchise obligations and another $135 million in long-term lease obligations. By putting some of these franchises out to pasture, Krispy Kreme will have some of these contingent liabilities added to its own balance sheet.
And we also need to look at the quality of the financing and the cash flows. At present, Krispy Kreme's debt is made up entirely of bank loans that come due in 2007; the company hasn't issued any debt securities. Bank debt is callable pending the debtor's failure to meet certain covenants. By failing to file its financials with the SEC, Krispy Kreme is currently operating solely at the mercy of these banks, including Wachovia (NYSE: WB - News) and BB&T (NYSE: BBT - News), which have granted the company waivers on its deadline to comply with the covenants of the loan.
Given the amount of exposure these two banks have to Krispy Kreme, would it not make sense that they'd be first in line to change the company's financing terms if they felt that the company's condition was anything less than dire? They could attach Krispy Kreme assets, but in a liquidation, what do you suppose the market value for used doughnut-making equipment would be? I'm guessing that the book value of these assets ($130 million in equipment and leasehold improvements) far overstates what they would be worth should the company close stores and attempt to liquidate them.
As for the cash flows, remember that Krispy Kreme's economic condition will change as a function of its cutting back on opening franchises. Krispy Kreme sells its doughnut-making equipment to new franchises and also pockets a fee for selling the franchise. These revenue streams will both disappear, and that will leave the company's cash flows dependent on ongoing operations. With store-level sales for franchises (i.e., most of the newer stores) dropping like a stone, the two entities must be in conflict. Franchises pay Krispy Kreme between 4.5% and 5.5% of sales as a royalty, plus they pay marked-up prices for the doughnut mix. Krispy Kreme could cut costs by shutting down its own company stores, but if franchises continue to struggle, the parent company will be faced with a Hobson's choice of either buying out the stores (with cash the parent company doesn't have) or assuming responsibility for loan guarantees. Ouch.
And even if the CSFB debt comes through, it will replace some of the existing debt and also be used to fund operations. All of this tells me the same thing: It's not a good bet to suggest that Krispy Kreme debt will decrease anytime soon. And it's REALLY not a good bet to assume that any debt abeyance that does come down the pike wouldn't come at a real, dilutive cost to existing equity.
Where's the cake?
The end result here is that the company is dependent on a dramatic improvement at the store level. Such an improvement would be quite a leap of faith given current trends at Krispy Kreme's outlets, particularly in off-premises sales. This is where comparisons between Krispy Kreme and Starbucks (Nasdaq: SBUX - News) have always broken down. Krispy Kreme stores make economic sense only when they have healthy off-premises demand -- the in-store sales come nowhere close to justifying the cost of such expensive equipment. But as we see in the most recent results, per-store sales continue to drop at double-digit percentages. At what point does the pressure on the franchisees mean that they come back to the parent company and demand a change in their deals, including a reduction in royalty rates?
This to me is a huge issue. Krispy Kreme needs cash, but its stores are selling less and less. There isn't exactly a long line of franchise candidates lined up to pay the fees and buy the equipment for new outlets, and Krispy Kreme has to worry about what's going to happen to the ones that exist right now, if sales trends do not stabilize and in fact tick upward. What the economics will look like for the company, given the poor health of its franchise and company store network, is nearly impossible to determine.
That's why a stock valuation of nearly $500 million makes no sense whatsoever. (The price has declined sharply since our story yesterday.) It assumes way too much optimism, where I see cause for very, very little. If anything, I think that the worst of the franchise woes for Krispy Kreme are still ahead of us, and that tells me that the thought of jumping in and hoping for the best with no real visibility into the condition of the franchises makes little sense. While the CSFB cash would certainly help, it isn't likely to be cheap, and it isn't likely to be pari passu with the common stock.
I don't think Krispy Kreme the brand and the company are going anywhere -- they have too much value. But the outcome for a company and the outcome of its common stock are sometimes very different things, and I think we may have a good chance of getting an object lesson in this with Krispy Kreme. To me, the common stock right now screams all pain, no gain.
Bill Mann has no financial interest in any company mentioned in this article.
biz.yahoo.com |
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| From: redfish | 4/4/2005 9:04:04 AM | | | | | | Krispy Kreme Gets Debt Financing
Monday April 4, 8:42 am ET
NEW YORK (Reuters) - Struggling doughnut chain Krispy Kreme Doughnuts Inc. on Monday said it received $225 million in financing from three separate credit facilities.
The facilities were arranged by Credit Suisse First Boston and Silver Point Finance LLC, the company said in a statement.
Krispy Kreme, based in Winston-Salem, North Carolina, avoiding defaulting on a $150 million credit facility in March after its lenders agreed to give the company more time to file its long-delayed financial statements.
The company has faced speculation this year that it may be forced into bankruptcy if it is unable to cover bad loans made to struggling franchisees. |
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| From: redfish | 4/14/2005 10:43:57 AM | | | | | | I closed out my puts for a loss of about 25%, imo KKD will be dead money for quite a while as it has no intention of revealing its finances anytime soon. Will take another look at it in the fall.
Krispy Kreme Restatement Deadline Delayed
Wednesday April 13, 6:05 pm ET
Krispy Kreme Doughnuts' Financial Restatement Deadline Delayed Until December
WASHINGTON (AP) -- Krispy Kreme Doughnuts Inc. can keep its lenders -- and possibly investors -- waiting for up to another eight months before releasing any new financial statements, including its corrected results for fiscal 2004.
The one-time Wall Street darling, which has seen its shares tumble amid accounting problems and a federal probe, recently negotiated a new and much more distant deadline to hand over audited results to lenders.
The new deadline, set at Dec. 15, replaces Krispy Kreme's earlier deadline, which required the company to get its restated results in by Monday of this week.
The Winston-Salem, N.C., company hasn't provided any other estimate of when it will file a financial report with the Securities and Exchange Commission. Krispy Kreme spokeswoman Amy Hughes declined to discuss the company's timetable for filing its financial statements or comment on the matter beyond the company's past regulatory filings and news releases.
The shares fell 12 cents, or 1.6 percent, to finish at $7.53 Wednesday on the New York Stock Exchange. The once-hot stock is down 39 percent from the start of the year.
Krispy Kreme in January disclosed its board had found accounting errors that it expects will cut previously reported fiscal 2004 net income by between $3.8 million and $4.9 million, or 6.6 percent to 8.6 percent. The company originally reported fiscal 2004 net income of $57.1 million, or 92 cents a share.
Under the $225 million refinancing agreement, Krispy Kreme's December deadline applies to its results for the fiscal year ended Feb. 1, 2004, as well as its audited fiscal 2005 results and unaudited results for the first half of fiscal 2006. Krispy Kreme otherwise risks defaulting on the agreement secured earlier this month, according to the agreement filed with the SEC last Thursday.
Krispy Kreme hasn't filed a financial report with the SEC since last September, for its second quarter ended Aug. 1, 2004. Its last earnings release was for its third quarter ended Oct. 31, 2004.
biz.yahoo.com
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