Chief Auto restructures LBO debt - leveraged buyout - Specialty Store Focus

Discount Store News, Nov 18, 1991

Chief Auto Restructures LBO Debt

DALLAS -- Chief Auto has restructured $68 million of $100 million in debt remaining from its 1988 leveraged buyout and is preparing six test sites here using free labor requested from its manufacturers' reps.

The restructuring stretches out payments and reduces interest rates on debt owed to General Electric Capital. Of the total, $51 million has been rolled over into a seven-year loan from five and carries a floating interest rate of 1 3/4 points above prime, now 7 1/2%.

In addition, GEC cut the interest on $10 million of a fixed rate term loan to a floating rate from 14 1/4% and rescheduled payment over seven years from five. Although the rate for the balance of $7 million remains at 14 1/4%, GEC also stretched the repayment schedule out to seven years from five years.

Terms of Chief's $50 million revolving credit with GEC remain unchanged.

In exchange for the concessions, Chief granted GE Capital more warrants to buy Chief stock. So far, however, GEC has declined to exercise any of the warrants it got in April 1988. Shearson, Lehman Bros. remains the principal stockholder, with an 88% equity interest, while management holds the balance.

Shearson invested $8.8 million of the $10 million down payment while management put up about $1.2 million. Total price for the chain, then consisting of 464 stores, was $133 million.

When the debt was restructured Sept. 30, Chief was current with principle and interest payments, said chief financial officer Jonathan Spatz. He declined to say whether Chief could have kept current without concessions.

Same store sales for Chief have fallen about 2% this year. Sales for 1991 are expected to fall to the 1989 level of about $375 million to $380 million.

The new GEC credit terms also limit the ability of Chief's executives to open new stores "unless they positively exceed their financial plan."

Chief plans to open a modest five to 10 stores next year, Spatz said. Instead of opening new stores, Chief is shifting its focus to refurbishing old units. Its 524 stores consist of two sizes, 2,400 square feet and 3,700 square feet, said Kenny Cason, director of advertising and chain spokesman.

Rather than try to enlarge stores, Chief "found hidden space" by reconfiguring the store layout, he said.

The "Power T" layout and power aisles lead to better traffic flow, Cason said, and open "power merchandising possibilities." The new layout improves customer service and permits more merchandise stackouts.

Improved graphics and lighting are part of the redesign, along with new exteriors. To save on expenses, Chief is using existing fixtures. And to save on labor expenses, Chief called on vendor reps to reset the stores in a move that started Nov. 4 and ends Nov. 22.

About 25 reps are helping to reset the stores at their own expense, Cason said.