JACKSON, Miss. -- Jitney-Jungle Stores of America here said last week it has obtained a five-year financing commitment of $37.7 million -- a loan the debt-laden company hopes will help ease some of its capital needs.
Ronald E. Johnson, president and chief executive officer, told SN the term loan will enable Jitney to focus on day-to-day operations while continuing to explore strategic alternatives. In contrast to statements by his predecessor in May, Johnson said finding a strategic partner "is just one option."
In response to an SN question, Johnson said the company is not considering a bankruptcy filing. "We had discussions with the board about that, but we have no intention of taking the company through bankruptcy," he said.
Jitney has been struggling for several months with a heavy pace of competitive openings, to which it has responded with an accelerated rate of store openings and remodelings of its own, despite an estimated debt burden of $545 million.
In late May Michael E. Julian, the company's chairman and CEO, said Jitney was exploring potential strategic partnerships in an effort to double its capital spending, noting that cash flow was sufficient to service the debt but not sufficient to service debt and boost capital spending.
A couple of weeks later, Julian and Rick Coleman resigned as CEO and chief financial officer, respectively, for personal reasons, and Johnson told SN Jitney was reconsidering the search for a strategic partner.
Johnson told SN last week, "When Mike left, the decision was made that we would continue to run our own business. However, if someone were to express an interest in Jitney, we would entertain talking to them."
The company said the $37.7 million loan commitment is still subject to completion of documentation and other customary conditions and is expected to close "expeditiously."
Johnson said the loan would be used for working capital and general corporate purposes. "It improves our liquidity position and allows us to continue to execute our promotional and capital improvement strategies," he said. Johnson told SN he believes the loan "is superior to" the $35 million supplemental revolving credit facility that Jitney said it was pursuing in May with two of its bank creditors, Bankers Trust Co. and Fleet Capital Corp. He said he preferred the term loan "because it means we have the cash in hand, which far exceeds the value of a revolver.
"We now have the money when we want it and to spend how we want, whereas the revolver involved special covenants with the bank group that told us what we could and could not use the money for. So we feel the loan is very much a better deal, with more flexibility."
The company said the loan is being advanced by Angelo, Gordon & Co. L.P., a New York-based investment management firm, in the form of a five-year term loan that is secured by a second lien on substantially all the company's assets.
Ted Bernstein, a high-yield securities analyst with Grantchester Securities, New York, said the liquidity provided by the loan may be insufficient, adding that he anticipates Jitney may have to dispose of some assets to increase its liquidity.
The $37.7 million is "a relatively small liquidity infusion," Bernstein said. "The company apparently hopes the additional liquidity will allay concerns of some vendors in the short term. But even with these additional funds, liquidity remains relatively tight at Jitney-Jungle.
"While this loan will tide the company over in the short run, Jitney needs to improve its operating results, pull back on capital expenditures, sell assets or some combination of the above to bolster its liquidity position on a more permanent basis."
In the short run, Bernstein said, he expects Jitney will tryto bolster its liquidity position by selling "individual stores or groups of stores here and there."
Bernstein also said he was confused about what the company means when it talks about finding a strategic partner "since it's not clear whether that means selling the company or not. And if it means selling, does it mean selling the whole company or some regions?"
Bernstein said he expects the company's future plans to become clearer when Jitney releases results in late July for the second quarter ended June 19.
John Wlodek, a high-yield analyst with Imperial Capital, Beverly Hills, Calif., said the revolving credit facility that Jitney initially pursued, as well as the loan it secured, were aimed at assuring the market and the company's creditors that it has sufficient funds available.
"And as the company considers a strategic partnership, it's to Jitney's benefit from a negotiating perspective to have this kind of financing lined up because, without it, any potential partner would know the company was between a rock and a hard place. This financing gives Jitney financial staying power."
However, he wondered if the firm's financial performance had deteriorated since first-quarter results were announced two months ago. "When you look at Jitney's first-quarter numbers, there was nothing there that indicated excessively poor performance, despite some weakness," Wlodek said.
"But the mystery, and the nagging issue, is has there been any downturn in the company's performance since the first-quarter numbers were reported a couple of months ago? It's possible there's some weakness in the numbers that has not yet been made public."
