VideoKrispy Kreme Doughnuts Inc. received some good news from lenders on Thursday. The struggling, once-gilded doughnut maker said it received amendments to its secured credit facilities which relax certain financial covenants. The covenants previously were scheduled to become more stringent during fiscal 2009.
The announcement comes one week after Krispy Kreme said it was seeking the changes. At the time, the company said that based on unaudited results, it was in compliance with the financial covenants in its credit facilities as of February 3, 2008, which is the end of the company's 2008 fiscal year. "While the company believes it will be able to obtain the requested amendments, there can be no assurance that the lenders will agree to them," said officials in a statement.
As of February 3, the outstanding balance of the term loan under the facilities was $76.1 million, and outstanding letters of credit under the facilities were $20.3 million. The term loan balance reflects a prepayment of $10.9 million made on February 1, related to the completion of the previously announced sale of the company's mix manufacturing and distribution facility in Effingham, Illinois.
Under the amendments, the interest rate on the loans outstanding under the facilities will increase from LIBOR plus 3.50 percent to LIBOR plus 5.50 percent, with a minimum LIBOR rate of 3.25 percent. LIBOR, or the London Inter-Bank Offer Rate, is the interest rate that banks charge each other for loans, and therefore one starting point for setting corporate loan rates.
Fees on letters of credit outstanding under the facilities will increase from 3.75 percent to 5.75 percent.
Krispy Kreme, which operates retail stores in the U.S. and Canada, is still trying to recover from an earlier accounting scandal and the subsequent shrinking of the company. At the beginning of this year, Daryl G. Brewster resigned as president and chief executive officer citing personal reasons. He was replaced by current chairman James Morgan.
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