Interesting news on Krispy Kreme Australia.
The interesting part is that KKD is relying on KK Australia raising new equity so they can pay KKD around $8M before the end of May.
"On November 30, 2005, Krispy Kreme International, Ltd., a wholly-owned subsidiary of KKDC, sold its 35% equity interest in Krispy Kreme Australia Pty Limited (“Krispy Kreme Australia”), our area developer in Australia and New Zealand, to KKA Holdings Pty Ltd (“KKA Holdings”), the majority owner, for approximately $2.5 million. Pursuant to the purchase agreement, we also agreed to sell our existing shareholder loans in Krispy Kreme Australia to KKA Holdings on or before May 30, 2006 for approximately $3.7 million. Our approximately $4.4 million guarantee of Krispy Kreme Australia’s debt is expected to be released on or before May 30, 2006."
They also agreed to sell their UK stake for $5.6M, a while ago.
"n December 2005, the Company entered into a term sheet with the majority owner of Krispy Kreme U.K. Limited (“KK UK”) setting forth the basis of a proposed sale by the Company, for $5.6 million in cash, of the Company’s 35% equity investment in and notes receivable from KK UK. A condition to the completion of the proposed transaction is a release by KK UK’s lenders of all guarantees by the Company of obligations of KK UK and a termination of an equipment repurchase agreement relating to KK UK. There is no assurance that the transaction will be completed."
The UK sale apparently has not closed yet, and it's been 6 months. Why are these two seemingly unrelated events so interesting? Well it relates to KKD's liquidity position. In their last 10k they said.
"The Company believes that it will have sufficient access to credit under the Secured Credit Facilities to continue the restructuring of the Company’s business, and that it will be able to comply with the covenants contained in such facilities. The financial covenants contained in such facilities are based upon the Company’s fiscal 2007 operating plan which includes, among other things, anticipated sales of certain assets and reductions in the amount of indebtedness and other obligations of franchisees guaranteed by the Company."
This says they are depending upon asset sales to maintain sufficient liquidity. Now one sale went through in the U.S. for $10M. But they look to fall about $9.3M short on the UK/Australia deals, plus be on the hook for $4.4M in debt they thought would go away. This could be a significant hit to their available cash.
"On April 17, 2006, the Company announced that, as of January 29, 2006, based on preliminary data, it had approximately $18 million of net borrowing capacity under these facilities (excluding amounts that could be borrowed to repay existing debt and based on the most restrictive covenant)."
They are required to maintain $20m in net liquidity or their loans can be called. It's unclear how much cash on hand they have, in November it was $27M.