Kmart's three-year bank debt dropped more than 20 points last week after the company filed a motion to amend its debtor-in-possession facility. The debt had been in the 60s, but traded at 40 after the company asked to increase the size of its DIP facility by up to $500 million. Kmart said it would not draw on the extended line, rather it just wants the extra liquidity. According to a statement released by the company, there is still $1.5 billion undrawn on the $2 billion DIP facility. The bank debt currently is being quoted in the 36 range.
Albert Koch, cfo, told LMW that the market misunderstood the company's request. "We tried to explain that we don't need the liquidity, but it would be a comfort to the factors and the vendors," he said. If an additional $500 million were available at the right price, it would counterbalance the sales results, he explained, noting that the company's sales figures have been slower to recover than expected. "We had anticipated that comparable store sales would improve gradually over the next year and still do," he said, adding that the sales expectations are just not as high as previously believed.
Market players also were upset after the company cited $400 million of cash available, seeing it as a sign the company was burning cash at a startling rate. The market was comparing the $400 million of cash available to the $1.6 billion of total cash on the company's balance sheet at the end of June, but the $400 million excludes the company's cash in stores and checks, Koch said. He explained that the market should compare the $1.6 billion figure to the company's total cash available, which is $1 billion.
Kmart also is seeking to relax a covenant requiring EBITDA loss be contained to $100 million or less. Reports indicate that the company wants to increase that amount to $400 million. Koch declined to comment on the covenant.
