Byline: Sidney Rutberg
NEW YORK — Factors are cautious but not pushing the panic button, and are generally checking credits to Broadway Stores in up to seven figures.
They’re also getting paid on time, and not turning down important clients selling to Broadway. But some are trying to cut back their exposure if possible.
As one credit executive put it, “They’re still losing money, and we have to watch it carefully. But their cash position is good. They have something like $60 million in availability on their credit lines, and they are in no danger of breaching any loan agreement covenants.”
For the year ending this month, the company is expected to lose about $14 million. “That compares with nearly $100 million they lost last year, so that’s pretty good progress,” he noted.
Frank Bongiovanni, executive vice president of Heller Financial, said that his firm is “supporting Broadway Stores and is extending credit without surcharges.”
Surcharges are made to clients by some factors when approving what the factors regard as weak credits. For example, credits extended to retailers operating as debtor-in-possession in Chapter 11 often carry surcharges to the clients.
Another factoring executive who requested anonymity said his firm was approving credits but watching the company’s progress carefully. “Although it is losing money, operations have been on plan, and there is no danger at this point that it will violate any of the covenants in its loan agreements,” he said.
The big problem at Broadway is its heavy leverage that results in huge interest charges. In 1993, interest expenses were $84.8 million ($63.8 million was paid in cash, and the rest was capitalized).
In June 1994, the first payment was made on Broadway’s $144 million in 6 1/4 percent convertible notes, and another was made on Dec. 31, 1994. These notes, sold in a private placement in 1993, are convertible into common stock at $12.19 a share. With the stock at under $6 a share, the convertibility feature is not worth much. The convertible notes are currently being quoted at 69-70 cents on the dollar.
In October 1994, cash interest payments on $344 million in 10.67 percent notes increased from 7.5 percent to the coupon rate. Up until that date, the difference between the 10.67 percent coupon and the 7.5 percent was being paid in the form of 9 percent notes.
Interest expenses in the first nine months of 1994 rose 12 percent to $71.5 million from $63.8 million in the year-earlier period, overwhelming operating profits of $22.2 million in 1994’s first three quarters. The firm attributed the hike in interest to rising rates and higher borrowing levels in the third quarter. — Financial News Service