NexCen threatened by pending debt payment
Elisabeth Butler Cordova
Buck Ennis
NexCen Brands Inc. shares plummeted Monday after it announced that it might not be able to meet a deadline to repay $30 million, raising concerns about the company's future.
NexCen officials reported the debt, used to acquire Great American Cookies in January, must be repaid by Oct. 17. They claim they were not aware of the pending deadline and did not include the information in the firm's most recent annual report with the Securities and Exchange Commission.
The debt deadline threatens NextCen's survival. "Based on information that is now known, the company believes that there is substantial doubt about its ability to continue as a going concern," the company said in a statement. Executives are seeking a cash infusion for the business and are considering selling part of the company.
A company insider blamed the trouble on the credit crunch because NexCen has been unable to find financing for a long-term bond that would have paid down some of the company's $178 million in short-term debt. "The balance sheet at the end of the first quarter looked vastly different than it did at the end of last year," said the source, who did not want to be identified.
Now the firm needs $30 million to pay the October balloon payment, as well as operating capital for the summer. The news sent shareholders fleeing NexCen; the stock dropped 76% to about 60 cents a share by early afternoon. The stock bottomed out at 37 cents a share in morning trading, down 85% from its previous close of $2.53. It settled at about 60 cents a share mid-afternoon Monday.
NexCen operates a controversial business model created by Chief Executive Robert D'Loren that relies on generating revenue exclusively from licensing and franchising its global brands. Among its stable of brands are fashion house Bill Blass, retailer The Athlete's Foot and home furnisher Waverly, as well as quick-service restaurant concepts, including Marble Slab Creamery, MaggieMoo's, Pretzel Time, Pretzelmaker, and Great American Cookies.
Analyst Todd Slater of Lazard Capital Markets, which had long rated NexCen's stock as "buy," on Monday dropped coverage of the company citing "serious concerns regarding management's disclosure of material information."
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