Southland Offers a New Plan in Effort to Save Sale

The struggling parent of the 7-Eleven retail chain and the Japanese investors seeking to buy control of the company announced a new bond-swap proposal Thursday in an effort to keep the deal from collapsing.

Southland Corp., the nation’s biggest convenience-store firm, also disclosed that it will not make interest payments due today on some of its $1.8 billion in junk bonds.

Analysts were encouraged by the bond-swap offer. But, they said, a strong chance remains that Southland will join the parade of debt-heavy retailers that have filed for Chapter 11 bankruptcy protection this year.

Southland announced in March that its Japanese partner, Ito-Yokado Co., agreed to buy 75% of the company for $400 million in cash. That deal, however, hinged on investors agreeing to exchange $1.8 billion in Southland junk bonds for new bonds carrying an overall face value of about $350 million, including some notes that would pay no interest until maturity.

Bondholders rejected that proposed exchange, prompting Southland and Ito-Yokado Thursday to offer a new package of bonds valued at $550 million. Brian Doyle, a director with Salomon Bros. in New York, gave the new offer a 30% to 40% chance of acceptance.

“It’s much better than what was on the table before,” Doyle said. “It’s also an indication that Ito-Yokado is pretty serious about buying the company.”

The new bonds being offered carry higher interest rates and shorter maturities than those in the earlier offer. Also, under the new offer, Dallas’ Thompson family--which owns or controls 94% of Southland--would keep less than 6 1/2% of the company after the bond swap was completed and the Japanese investors put in their $400 million.