By Michael Rudnick
CLIFTON, N.J.-- A new loan could be a good thing for Linens 'n Things.
The big-box home retailer, which has recorded five consecutive quarterly losses since being acquired by Apollo Management LP, now has a more favorable credit line to lean on as it enters the crucial holiday selling season.
Linens 'n Things late last month entered into a new $700 million credit agreement with GE Capital Markets Inc., which replaced an existing $700 million facility with affiliates of UBS Securities LLC. The new credit agreement provides for an improved borrowing base on inventory and receivables, as well as the elimination of financial covenants, which are financial thresholds that must be met to maintain a loan. The elimination of financial covenants implies that the lender is confident with Linens 'n Things, ability to pay in a timely manner.
Frank Rowan, senior vice president and chief financial officer of Linens 'n Things, told HFN that the elimination of financial covenants and improvements in advance rates gives the company more financial flexibility to effect a turnaround. He said that the previous credit agreement had customary financial covenants in regard to maintenance of a certain level of availability, which Linens 'n Things was always able to satisfy. He added that the overall interest rate of the new credit line is consistent with the prior loan.
Linens 'n Things, new credit agreement provides the company plenty of cash, Rowan said. "One of the core elements of our strategy is to always operate with more liquidity than we think we will ever need," he said.
A handful of vendors surveyed by HFN said Linens 'n Things continues to pay in full and on time. "We have not had any payment issues with LNT and have not cut back programs with them either," one unnamed housewares vendor told HFN.
Another unnamed housewares vendor echoed that sentiment, saying, "Actually, we are having very good performance from them this year. We had put a plan together to fix the business and it is working very well. Financially, we have no issues." An unnamed tabletop vendor added, "We are not having any problems [with Linens 'n Things paying bills]. We are planning to have a strong business with them."
However, some vendors are taking additional precautions in doing business with the retailer. Two textiles vendors and one tabletop vendor who requested anonymity said they recently purchased higher-than-usual levels of insurance for inventory shipped to Linens 'n Things.
Rowan said that Linens 'n Things continues to pay all of its vendors and suppliers in a timely manner and continues to receive strong support from the vendor community. He reminded that these vendors may have taken extra precautions amid an overall difficult home furnishings environment, and that Linens 'n Things has improved its cash position of late. The company for the second quarter ended June 30 had $17 million in cash and cash equivalents, compared with roughly $13.5 million at the end of the year-ago period and about $8.6 million at the end of the first quarter of this year, as earlier reported by HFN.
Margaret Taylor, vice president and senior credit officer with Moody's Investor Services, said, "We thought [Linens 'n Things] had adequate liquidity for the next 12 months [at the end of the second quarter]," adding that she will carefully monitor the upcoming third-quarter report.
