PCA, the operator of Wal-Mart Portrait Studios, has turned to Jefferies & Co. for $50 million of four-year, second-lien, senior secured notes. The debt will refinance PCA's $50 million revolver and provide breathing room to keep the company going.
Wells Fargo Foothill is also putting in place a $10 million senior secured revolver and a $20 million letter of credit facility. Price talk on the notes is in the 13-14% range, according to one banker.
PCA's accountant, Deloitte & Touche, has expressed doubt about the company's ability to continue as a going concern, but this new financing will provide sufficient liquidity to satisfy cash requirements for fiscal 2006, according to Kristi Broderick, a Standard & Poor's analyst. "They had a very rough 2004," she noted.
A Jefferies banker declined comment. Don Norsworthy PCA's executive v.p. and cfo, did not return calls. A prospectus for the debt noted macro-economic factors such as escalating gasoline prices and rising interest rates have had a noticeable negative impact on the disposable income of Wal-Mart's target customer base.
The company, which also has $165 million of senior unsecured notes, has had to amend its credit agreement with lenders and reset financial covenants through Jan. 29 2006.
Broderick noted the company does have initiatives in place. These include new pricing points and marketing plans. PCA will open new stores as Wal-Mart opens new outlets. Also, according to the company's prospectus, despite the decline of year-over-year sales in fiscal 2004, during the past three fiscal years overall, PCA has increased its net sales at a compound annual growth rate of 4.4%, from $296.6 million to $323.6 million.