NexCen Doubtful Of Surviving

Blue MauMau:

NexCen Brands stock plunged 77 percent yesterday after warning that it faced a severe cash squeeze and had “substantial doubt” that it will remain in business. The firm discovered, during a review of its books, reporting errors and its obligation to pay off $21 million in debt by October. NexCen, a fast-growing buyout firm, which owns a number of franchise chains totaling 1,900 units, may try to sell off most of its brands. The firm’s portfolio includes Athlete’s Foot (a Bill Blass company), Pretzel Time, Pretzelmaker, Great American Cookies, Shoebox New York, Waverly home furnishings, Marble Slab Creamery and Maggie Moos.

As the company’s new Chief Financial Officer, who was appointed in March, prepared the first quarter report for 2008, a credit problem was discovered. When NexCen acquired the Great American Cookie business, its bank credit allowed the borrowing of an additional $70 million to finance a portion of the acquisition. The credit included an accelerated-redemption feature applicable to $35 million of the $70 million. The amendments require that the $35 million be reduced to $5 million by October 17, 2008. The company was surprised to find the accelerated-redemption feature in its bank credit as well as other changes. These liabilities were not disclosed in the company’s 2007 Annual Report or its January 29, 2008 report that was filed in connection with the acquisition of Great American Cookies. Such financial obligations will greatly reduce the company’s available cash to run operations.