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
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