Shorts should be aware that Longs posting on this board have cited a number of arguments why Krispy Kreme will NOT go bankrupt. Among the more powerful are:
1. The brand alone is worth $250 million.
2. Krispy�s book value is $7 a share
3. Krispy�s market cap is amost $400 million
2. Krispy Kreme has been in business since 1937
3. Krispy Kreme is in the Smithsonian
4. The donuts taste good
5. Goldman Sachs has bought shares and they are not dumb
6. Fidelity has bought shares and they are not dumb
7. Oppenheimer has bought shares and they are not dumb
8. McDonalds may buy out KK.
9. Starbucks will buy out Krispy
9. Warren Buffet may buy KK and merge it with Dairy Queen
10. All Krispy has to do is close stores and cut expenses
11. Krispy Kreme is too important to go bankrupt
12 Krispy Kreme is not important enough to go bust
13. The landlords will renegotiate leases on better terms
14. Cooper is a smart turn-around manager
15. The Chapter 11 process is too complicated
16. Cooper is saying KK will run out of cash in order to strengthen his bargaining position with the banks
17. Goldman Sachs is accumulating shares to control common votes
18. Krispy Kreme doesn�t have enough assets to warrant the trouble of bankruptcy
19. It just won�t go bust
20. The banks don�t want to run a donut company
21. Krispy Kreme is not Boston Chicken or Enron
22. The SEC inquiry is innocuous and will be dismissed
23. The Class Action suits are trivial and of no concern
24. The banks will accept equity and refinance
25. Krispy is America�s company
26. Doofus says it won�t
27. The books are only slightly cooked
28. You never know
29. You never know what you don�t know
30. Somebody knows something we don�t know
31. Nobody knows.
A lot of those companies are still in business. Dig deeper and let us know how many of them rewarded shareholders that stuck with them through their problems. Not that it matters. Statistics don't mean anything when it comes to whether any one company that KZC is working with will file BK - and it's even less certain what the fate of any company that files BK will be. If it was that easy for you shorts the stock would already be on the pink sheets. This company isn't in as bad of shape as you think. The market isn't THAT inefficient.
capex requirements: not much in ZERO GROWTH mode
You are assuming that what kkd used to call capex was really capex. It may have been capitalized expenses.
Note that a recent p/r refers to "required" capex. Now, what in the world is required capex?
Don't forget that at the end of fy04, $87 million was drawn on the line of credit; now it is $62 million. I wrote at that time that I thought the banks had effectively called in the loan (hence the sale/leaseback of Glazed Investments to enhance liquidity, i.e. pay off some of the line).
Now, I'm not a bk expert but doesn't the 12 month rule come into effect here, i.e. the $25 million paid back might be forced back into the pot if and when a bk filing occurs; the timing of the $25 million is critical because we may have already passed the 12 month anniversary on some of it.
The only reason I have debated the issue is your earlier opinion, here confirmed, that the most probable (64%) outcome for Krispy in its current situation is refinancing short of bankruptcy. This is so contrary to my own conclusion that I had to probe your thinking.
Thanks for your explanations.
I think your analysis discounts the shareholder lawsuits and SEC investigation a bit. Even if there is no liability to equity holders, lawyers fees, and possible penalties, etc will be a drain on cash, thus making the possibility of equity holders benefiting from cash flow of a downsized KK improbable at best.
Politically, I would think the banks would want to get this can of worms behind them. They might be viewed as complicit if they bail KKD out.
Simply put, too much liability.
I would put the odds of Ch 11 at 50%. At least.
Ley me ask this. Why even try? This situation is a case study in the use of Chap 11. Cooper was not brought in to turn around the company for the shareholders this is clear. The banks have their BEST shot in Chap 11! They don't need these pesky lawsuits / SEC investigations / Franchise lease guarantees etc... overhanging them, do they? Why would they NOT use Chap 11? That is the new question.
Of course if we assume Krispy can "get from the combined current situation to the pared down situation using very little cash," why then it's problems are easily solved.
When I suggested the need was for $100 million or more new cash, I had in mind possibly as much as $200 million. This to cover not only immediate operating and capex requirements but also the existing franchise loan and lease guarantees, the lease guarantees on company owned stores to be closed, SEC sanctions and fines, Class Action and Erisa settlements, and extraordinary KZC, PWC, and Weil Gotshal expenses.
Perhaps I'm missing something?
Again I do not understand your statement?
2. You can get from the combined current situation to the pared down situation using very little cash.
I thought Di showed us in a prevous post that it cost approximately $ 1,100,000 each to close six previously unprofitable locations. Perhaps he will respond or you can show us how they will " pare down" without lawsuits from Franchisees or penalties to Lessors to break leases. What am I missing. I believe the $100 million figure was conservative and incorporated paying off the other creditors $ 60mm weak hands which might precipitate a filing ( 11) and another $ 40 mm for restructuring and working capital.
Well put and I certainly agree but believe the Company with old management holdovers is the second string team in this event and while Cooper cannot fire them at will if the bank would like a reshuffling including the hiring of some new marketing pros Cooper will be more likely to lean in that direction than please the incumbent BoD who's principal object at this time is to save themselves from legal claims of complicity and gross negligence. With the new settlements ( ala Worldcom etc.) my guess is that the BoD has some meaningful monetary risks.