Crown Books has filed a reorganization plan with the U.S. Bankruptcy Court that calls for an investment firm, along with the book chain's creditors, to become Crown's new owners. Under the proposal, Crown's unsecured creditors would receive an equity stake in the new company in exchange for settling their claims against Crown.
Although many of Crown's unsecured creditors are publishers, nearly all their claims have already been acquired by a New York investment group, Primus Multi-Sector Credit Master Fund Inc., which will become Crown's largest single shareholder. Other unsecured creditors include landlords and various vendors.
Under the proposal, the unsecured creditors would recover approximately 38% of the $60 million owed to them. With Crown planning to issue five million shares, the value of the company at the point it emerges from bankruptcy would be approximately $23 million. The unsecured creditors will own 100% of the new Crown, subject to a 15% option plan for the company's senior management.
Shareholders who had held stock in Crown, including Richfood Inc. (which owned 52% of the company following its purchase of Dart Group), will receive no equity in the new company. In addition, Dart has agreed to forgive any monies owed to it by Crown in exchange for a full release from future claims.
As a result of the settlement, which Crown hopes will be approved no later than October 2, the chain "will not be a highly leveraged company," according to Steve Panagos, a partner in Zolfo Cooper LLC, Crown's financial adviser. In fact, Crown has secured a $35 million revolving credit facility from Paragon Capital and has also received a commitment from Ingram and other major suppliers for normalized credit terms.
Crown's plan for competing in the marketplace centers around returning to its roots as a deep discounter of books. The company's new management, headed by president Anna Currence, also has been able to improve Crown's internal controls, which had broken down under the previous regime. The company has reduced operating expenses by $25 million and in a further bid to improve margins intends to buy new titles directly from publishers. The new company will have 92 stores in five cities and 1600 employees.
According to the company's financial projections, Crown anticipates a quick return to profitability. Forecasts call for the chain to report operating income of $1.7 million in the current fiscal year with EBITDA (earnings before interest, taxes, depreciation and amortization) of $5 million. A $4.3 million net loss is projected for fiscal 2000, although Crown expects to make a profit of $1.8 million in fiscal 2001. The chain lost $66 million on sales of $216.8 million in fiscal 1999.
In the current year, year-to-date sales through July 7 were $72.4 million, 2% behind plan.
