By Jeremiah McWilliams
Furniture Brands International Inc. wants to borrow from Peter to pay Paul.
Trying to ward off a default on its debts, the Clayton-based seller of Lane and Broyhill furniture on Thursday was close to making final a deal to tap a new credit line so it can repay bondholders early.
Carrying through a plan broadly outlined earlier this summer, the company hoped to arrange a $550 million credit line and to repay $150 million in principal on corporate bonds — plus a $14.2 million “make-whole premium” and $2.5 million in interest.
Furniture Brands, which had warned of imminent default if refinancing was unavailable, hoped to finish the deal late Thursday.
“We haven’t broken out the bottles of Champagne yet,” Senior Vice President Lynn Chipperfield said in a late-morning telephone call. But “everything is basically where it needs to be…”…. There’s no last-minute hang-ups.”
In response to questions later in the day, Chipperfield referred to a Securities and Exchange Commission filing expected today confirming the transaction.
Earlier this year, the company alerted investors that it probably would break the terms of the covenants attached to $150 million in corporate bonds and a $400 million credit line. The covenants imposed restrictions on Furniture Brands, such as limits on debt per dollar of earnings.
For months, the company has tried to get more-permanent financing, as weak retail sales and competition from lower-cost importers erode profits.
Furniture Brands twice was able to negotiate loosened covenants, gaining breathing room and allowing it to avoid default. But the modifications were temporary. On Tuesday, the company had promised to repay the bondholders on Thursday. In a filing with the SEC on Wednesday, the company laid out — in bold type — a warning of dire consequences if a deal was not completed on Thursday.
“If we are unable to complete the refinancing of our debt obligations on Aug. 9, 2014, we will be unable to satisfy our repayment obligations under the Senior Notes and will be in default,” the company told the SEC.
That would have left the company vulnerable to demands that it speed up its payments of principal and interest.
In early July, as Furniture Brands worked to hammer out a new line of credit, the company said it would pledge its inventory, accounts receivable and cash deposits as collateral. In its SEC filing on Wednesday, the company said those assets would back the planned $550 million credit line.
“While the new line contains less restrictive covenants, the cost to equity investors was high,” John Baugh, an analyst with Stifel, Nicolaus & Co. of St. Louis, wrote in a research note last week.
Still, shares of Furniture Brands have rebounded after touching an 11-year low of $10.91 on July 30. Since then, the shares have gained 14.7 percent, closing Thursday at $12.51.
Furniture Brands continues to attract the interest of SCSF Equities LLC of Boca Raton, Fla., an affiliate of private investment firm Sun Capital Partners. Sun Capital’s affiliates have invested in or acquired furniture companies, including sofa and love seat maker Berkline BenchCraft Holdings and Rowe Furniture, a manufacturer of upholstered pieces.
When SCSF Equities bought a 5 percent stake in Furniture Brands earlier this year, the firm hinted that it might seek an active role in the company.
In a bout of trading between July 30 and Monday, the firm raised its holding in Furniture Brands by nearly 493,000 shares, boosting its stake to 6 percent and making it Furniture Brands’ fifth-largest shareholder.
SCSF Equities executives did not return a message seeking comment on Thursday. Chipperfield said Furniture Brands’ interaction with the firm has been routine.
jmcwilliams@post-dispatch.com
314-340-8372
