Krispy Kreme in talks with lenders about waving potential defaults from filing delays, restatements

By Sara Rosenberg

New York, Jan. 4 - Krispy Kreme Doughnuts Inc. is in talks with lenders regarding a waiver of defaults under its $150 million credit facility that will arise when the company - as is currently expected - does not deliver financial statements for the quarter ended Oct. 31, 2004 on or before Jan. 14, according to a company news release.

Furthermore, the necessary restatements to the company's financial statements - which is the reason behind the filing delay - for the fiscal year ended Feb. 1, 2004 and the last three quarters of that fiscal year regarding pre-tax income may also result in an event of default under the credit facility, so a wavier is being sought for that as well.

A waiver of these events requires approval by lenders representing more than 50% of the financing commitment under the credit facility.

If a waiver is not obtained, then the credit facility can be terminated and all amounts outstanding would be immediately due and payable. At Oct. 31, 2004, the company had about $90.9 million outstanding under the loan.

Because of the near-term default potential, Krispy Kreme is unable to draw on its credit facility but existing cash and cash generated from operations is believed to be sufficient to fund current operations and presently contemplated capital expenditures, the release said.

However, a liquidity crunch is feasible if the company is called upon to honor its guarantees of franchisee debt or franchisee operating leases, the release added. At Oct. 31, 2004, the total guaranteed amount was approximately $52.3 million, primarily comprised of $32.1 million related to consolidated joint ventures and $20.2 million related to franchisees.

To date, Krispy Kreme has not experienced any losses with respect to these guarantees; however, it has been advised that certain of its franchisees are not in compliance with certain covenants contained in their credit agreements. At Oct. 31, 2004, the total amount of the debt guaranteed by the Krispy Kreme under such credit agreements was about $16.7 million.

Krispy Kreme is a Winston-Salem, N.C., branded specialty retailer of doughnuts.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.