Main Menu
In the News
Special Contributors
Special Report - Bedding
Events Calendar
Contact HGO
2015 Product Guide
Merchandiser Spring 2015
Merchandiser Winter 2015
Research Store

Canada Counts
A survey of Canadian buying intentions.
Purchase Report


The Brick signs new credit facility and offers enriched premium to bond holders PDF Print E-mail
Written by Michael J. Knell   

EDMONTON (15 March 2012) - The Brick Ltd.'s financial life seems to have gotten much healthier in recent months. Not only has its stock price risen to a high not seen since before the onset of the recession in late 2008, Canada's largest full-line furniture and appliance retailer has entered into a new credit facility with BMO Bank of Montreal while offering to buy out bond holders two years early at a premium.

Earlier this week, The Brick announced it has entered into a new five-year $100 million asset-based credit facility a group led by BMO Bank of Montreal. This will replace the previous three-year facility signed with GE Capital in 2009. The new BMO facility includes a $50 million accordion feature, which can increase the retailers' borrowing capacity to $150 million if needed.

"Although we have not borrowed any funds under the previous credit facility with GE Capital since March, 2010, the new five-year facility will positively support operations, our debt repayment initiatives and the future growth of our business," Vi Konkle, the recently promoted president and chief executive officer of the Brick Group, said in a statement.

When it entered into the original financing deal with GE Capital, The Brick also issued a series of senior secured debentures, payable at the end of May 2014 at 12%. The two largest debt holders, who are also the company's two largest shareholders - Brick founder Bill Comrie and Fairfax Financial Holdings, a Toronto-based investment firm - have signed support agreements and will tender their debentures to the offer.

The Brick is now offered these bold holders a two percentage point premium - that is $1,140 plus accrued interest for every $1,000 debenture warrant - to cash out before April 6, 2012.

The company said the estimated value of the outstanding debenture warrants was just over $110.1 million. If all are redeemed under this offer, the deal's value would be just over $125.5 million.

In her statement, Konkle noted "this cash tender offer of debentures represents a key step towards reducing the financing impact of The Brick's 2009 recapitalization. The offer remains consistent with our previously stated use of cash strategy and is focused on enhancing long-term shareholder value."

Analysts pointed out that by paying off the debentures two years early, The Brick will save literally millions of dollars in interest payments, which may even enable it to resume dividend payments sometime in the foreseeable future.

The value of Brick stock on the Toronto Stock Exchange has risen quite sharply in recent weeks and is currently trading in the $3.60 range - a far cry from early 2009 when it was trading at well below $1 after falling from over $9 in 2008.

At the end of the third quarter of 2011, the Brick had reversed its prior loss to post net income of $22.7 million or 29 cents per share. It also reported substantial improvements to its cash position, saying it had $139.5 million in cash and cash equivalents at the end of September, compared to $44.8 million at the same date in 2010.

Most observers attribute The Brick's improving financial health to the resurgence of its mattress business and the category's higher than average gross margins. This is in contrast to electronics - another big part of the retailer's overall business - when prices have been falling and margins are shrinking.

However, these observers also point out that the mattress category is getting hot for The Brick's major competitors. They note Sears Canada is fighting for market share with reduced prices on entry level to mid-market goods while adding more luxury and specialty items.

At least one analyst has praised the Brick for getting its merchandising house in order saying the company seems to have left behind the days when sales staff would run a promotion for leather sofas when the buyers didn't have sufficient inventory on hand to meet demand. Stephen MacLeod of BMO Nesbitt Burns told the Globe & Mail, the Brick now has "less cash tied up in inventory and they're beginning to operate the way a furniture retailer should operate.

The company will report its fourth quarter and year-end 2011 results on March 20.

<Previous   Next>



Please, update your HGO profile

BRIGHTON, Ontario – To improve the efficiency of our newsletter delivery service and to bring ourselves in alignment with current Canadian legislation, we need our loyal readers to update their profiles.

If you’re in big ticket home goods, you can’t be without Home Goods Online – the only business-to-business news and information service for those working in Canada’s furniture, mattress, major appliance and consumer electronics industries.

Update Your Profile Now
HGO Merchandiser