Lenders Give a Breather to Standard Brands Paint

Standard Brands Paint Co., the troubled Torrance-based paint retailer, said key lenders approved new loan terms that could give the firm more financial breathing room.

Standard also said it reached an “accommodation” with a major shareholder who had been waging a proxy fight against management.

However, the shareholder, John Latshaw of Kansas City, Mo., said in an interview that he was unsure exactly what Standard proposed in its accommodation.

Standard, which operates 134 relatively small paint and home-decorating stores across the West, has been struggling for three years with heavy debt and increasing retail competition.

In the agreement announced Wednesday, Standard said creditors Transamerica Life and SunAmerica Cos. will allow the company to sell some Texas store sites and use the proceeds to reduce debt. Standard has wanted to sell 13 Texas sites since last year but has been held up by covenants in its loan agreements.

Transamerica and SunAmerica also will exchange $16.25 million in Standard’s Series B preferred stock for two new issues of preferred stock worth the same total. The new Series D and E shares will pay the same 10% dividend as the old, so Standard’s dividend bill won’t change.

But the lenders will be able to convert the Series D shares into 996,890 Standard common shares at $7.97 a share. The conversion price on the Series B shares had been $16.30. By dropping the conversion price, Standard has improved the odds that the lenders will eventually reap a gain on their investment, if the common stock rebounds.

Standard’s stock closed at $9.375 on the New York Stock Exchange on Wednesday, up 62.5 cents. The announcement came after the close. The stock has tumbled from a high of $32 in 1987.

Despite the agreement with Transamerica and SunAmerica, Standard said it still must replace its current bank lender, Security Pacific. Standard owes Security $27.6 million. The company said it has received “indications of interest from several financing sources to replace Security.”

Standard also said it hired investment bankers Allen & Co. and Donaldson, Lufkin & Jenrette to advise it on “possible debt restructuring and capital-raising” ideas.

It is still unclear how much Standard might raise from the sale of the Texas sites, whether it can cut its $18-million annual interest bill and whether it can end six years of declining earnings. The firm lost $1.53 a share last year, including restructuring charges, on revenue of $294 million.

Investor Latshaw, who owns 15.8% of Standard’s 5.5 million shares, has been pushing to either make major changes in the company or put it up for sale. Standard gave Latshaw a board seat in March but then declined to let him serve beyond last month. Latshaw then launched a proxy fight.

Wednesday, Standard said its proposed “accommodation” of Latshaw would include electing two new outside directors to the nine-person board and the creation of a “stockholders advisory committee.” The committee, made up of three outside directors, would meet at least quarterly with major shareholders to let them “express their views on the company’s future strategic direction.”

Reached after the Standard announcement, Latshaw said that he was unclear on what the firm was proposing and that he’d await clarification at the company’s Friday board meeting. “We’ve got to find out what’s involved,” he said.