Circle K Posts Loss, Seeks to Restructure Debt of $1.17 Billion

In another sign of woes in the retailing industry, Circle K Corp., the nation’s second-largest operator of convenience stores, said today it is trying to renegotiate its debt to combat an expected liquidity crunch. Circle K said it believes a negotiated restructuring, although hard to achieve, can be successfully completed without filing for bankruptcy protection.

The Phoenix-based retailer’s current debt load is $1.17 billion, most of which is in high-yield, high-risk junk bonds, said Circle K spokesman Ray Cox.

“If the company does not achieve a financial restructuring, it will not have adequate liquidity,” the company said.

Circle K also reported a loss for the fiscal third quarter ended Jan. 31 of $28.1 million on revenues of $872.5 million, compared with profit of $12.8 million on revenues of $895.2 million a year earlier. The year-ago earnings included a $14.4 million gain on the sale of certain operations.

It said its sales have been hurt by intensified competition from gasoline companies’ expansion of their convenience store operations and from supermarkets competing more aggressively for convenience-oriented customers.

The company, second in size only to the troubled owner of 7-Eleven convenience stores Southland Corp., said its earnings continue to be hurt by high interest and depreciation costs from acquisitions and expansion, and by heated competition.

It said it has reviewed its marketing policies and is cutting prices in several key product areas in an attempt to boost sales.

Circle K has more than 4,650 stores in 33 states in the South, West and New England and licenses another 1,250 stores in 11 foreign countries operating under the Circle K name.

Over the past year, the company has been struggling to cut costs, reduce inventory, change management and try different pricing strategies in an effort to come up with a winning money-making formula.

Circle K said it had to cancel the payment of certain cash dividends. All of its preferred stock is owned by affiliates of its largest shareholder, American Financial Corp., which has been advancing Circle K cash.

It said for its fiscal third quarter, it was in technical default of its bank lending agreements but the noncompliance has been waived until April 6, when a $60 million portion of the borrowing is owed. Circle K said it will seek an extension of that waiver until the completion of the restructuring.

The company said it is required to repurchase on April 16 $20 million of its $180 million of outstanding senior secured debt because of its failure to meet interest payments.

Circle K said it is seeking modification of the senior debt agreements.