Crust sale set to raise debt dough
Atrophied franchising giant Retail Food Group has confirmed it is considering selling assets to pay down debt, but says the $100 million price tag media slapped on its Crust Pizza empire is too high.
A newspaper reported yesterday that PAG Asia Capital was believed to be in pole position to buy Crust Pizza from Retail Food Group at auction.
The sales come as the company faces an October 31 deadline for repayment or restructuring of its estimated $250 millionplus in bank debt after breaching banking covenants last year.
After a horror run over the past two years, shares in Retail Food spiked more than 20 per cent before the company announced a temporary trading halt to address the speculation.
The Gloria Jean’s Coffees and Donut King operator confirmed to the market that it was investigating possible sales to reduce debt.
But it said no binding agreement had been reached for any of its assets.
Retail Food said the $100 million sale price for Crust Pizza estimated in the report was above its own expectations.
The shares returned to trade consistently higher to finish 15 per cent stronger at 34¢, a 4.5¢ rise for the day.
Yet the stock lost about 95 per cent of its value over the past two years after shocking investors with losses and troubles with its franchise network.
In August Retail Food Group expanded its store closure program after it slumped to a $306.7 million full-year loss, the latest in a string of financial stumbles following accusations it was treating franchisees badly.
The company revealed plans to close 250 domestic stores — up from the previously announced 200 — by the end of the 2018-19 financial year as it tries to gets its finances in order.
Its annual accounts showed $265 million was repayable within 12 months despite it earlier having negotiated loan repayments out to early and late 2020.
Notes to the accounts revealed Retail Food had breached debt covenants in June 2018, and that its debt covenants were restructured after receiving a waiver for the breaches of old covenants.
This allowed it to have higher net debt compared with earnings, but put the major loan repayment back from the 2020 dates to October 31 this year and demanded a higher cut of asset sales for debts.
“These revised banking arrangements will also come at an increased cost to the group, which has been factored into future cash flows,” the company warned shareholders.