Western Dough advisor:
Partners are all from Bowles Hollowell Connor (yes, that Bowles) investment bank:
This partner was senior member on Bowles Senate campaign staff:
I think that you are 'right on' concerning the liquidity bubble. There is a lot of money looking for investment and to loan. A rising tide is lifting all boats including some s***ty companies and stocks.
On the Sovereign sale/leasebacks we know that GI terminated Sovereign's leases in bankruptcy. It is public knowledge whether KKD had guaranteed these leases and if so what the current status is?
here's the info. you can check out the entire thread for info on which stores were kept, etc
Look at the GI financial statments for March.
Sales were about $2.4 million.
Gross payroll: $0.85
Expenses net of Interest/Principal (0.21) and Cure Amount (0.06): $0.87
That's net profit of $0.78.
Mix and royalties.
How much accrued during the quarter from kkd for mix?
If royalties were 5.5%, that's another 0.12.
Payables went up by 0.95 during the quarter; net of kkd's 0.72 (0.6 + 0.12), that's expenses of 0.23.
So, adding it all together, pre-tax income would be
0.78 - 0.72 - 0.23 = (0.17).
Take out the royalty and it's (0.05).
Remember, though that this performance assumes no depreciation and no interest payments.
also, i agree that spoor told Kelso something. I assume he told them he's buying the territory to re-flip it to KKD one day, and a second maybe more important thing: he's leveraging fixed costs.
Look at MOVI's buy-out of Holywood. MOVI was in trouble an overleveraged. What was their answer? Lever up even more, make an acquisition and share the fixed costs! Pure Roll-up strategy. Now MOVI will probably end up doing a bk anyway, but guess what? Whoever funded/approved this buy-out did so because they thought it sounded ok. There was no "mysterious reason".
I think the lessons of the dot-com bubble, only 6 years old, are being forgotten not only by BlackRock Kelso but also by us, when we try to "make sense" of the GI deal, the Sovereign sale-leasebacks, the SP loan to KKD etc.
Look, there's a liquidity & hedge fund bubble. There's tons of trash out there. junky junky stuff. Personally, I would not for a minute infer KKD forgiveness of anything.
>> Then the question becomes, why would somebody lend LS $10 million to buy the GI assets?
It seems to me that at a sufficiently low level of royalties, and with the investment in buildings and equipment regarded as lost, the business ought to be profitable. I mean, people do make a living from doughnut stores, and having "free" buildings and equipment ought to enable you to outcompete.
So if KKD made sufficient concessions, it ought to be able to put together pro formas that induce the investment bankers to invest.
From an economic point of view, what would be happening in such a deal is that KKD gives up the part of its royalties that is uncollectible because it is so high that it drives WD out of business, and it sells another part of its future royalties to Kelso for $10 million. The equity holders of WD, and any lenders subordinate to Kelso, are obviously the losers in this deal.
My guess is, that like other area developers, LS ran up significant payables to kkd.
What if kkd forgave those receivables (from kkd's perspective) in return for LS buying the GI assets?
Then the question becomes, why would somebody lend LS $10 million to buy the GI assets?
My thought is that Spoor must have realized his business could not go on as it had, and that's why he brought in the "strategic alternatives" guys.
If WD could not go on as it had, I can't imagine that adding GI (even a winnowed-down version) would turn it around. The inference is that KKD must have made some kind of concession that turned WD into a more viable entity.