Southland Buyout on Track With New Plan

Southland Corp. said Tuesday that it was again attempting to complete its $4-billion leveraged buyout, which it postponed last month because of problems finding buyers for the high-yield “junk bonds” needed to complete financing for the deal.

Southland amended its debt registration statement with the Securities and Exchange Commission to outline a new debt plan, under which the company will borrow $1.5 billion and issue more than 26 million warrants to purchase Southland common stock under certain conditions.

In New York Stock Exchange trading, Southland shares jumped $3.625 to $64.125, apparently on the belief that the buyout was now more likely to proceed.

The original offering of $1.5 billion in debt, which did not include the provision for stock warrants, was postponed Nov. 10 because of problems in finding takers for the bonds following the stock market’s October crash.

Following the crash, the market for high-risk, high-yield junk bonds used to finance many takeovers dried up, partly because investors placed their funds in less speculative investments.

In addition, a number of analysts have speculated that companies undertaking huge debt loads in leveraged buyouts could have problems servicing the debt if an economic slowdown were to follow the stock market’s crash.

Southland, parent of the giant 7-Eleven convenience store chain, is being taken private in a leveraged buyout led by its founding Thompson family.

In a leveraged buyout, a company is bought mainly with borrowed funds that are repaid with the company’s cash flow or by the sale of its assets. Any economic slowdown could make it tougher for such companies to realize enough cash from either source to make its interest and principal payments.