Crown Crafts Clears Up Finances

Don Hogsett, July 17, 2006

Gonzales, La. — In a move that cuts its debt in half and slashes the interest rate it pays, Crown Crafts Inc. has completed a sweeping refinancing that should substantially boost profits going forward, and at the same time free up cash to make acquisitions to broaden the company's product portfolio.

The supplier of infant and juvenile products has been in survival mode ever since a 2001 refinancing, the sale of its former core bedding businesses, and a downsizing that took the company from $357 million in sales at its height in 1999 to $84 million in its most recent fiscal year.

Now it's poised for growth. “But not just growth for its own sake. We want highly profitable growth,” said ceo E. Randall Chestnut, the architect of the company's turnaround.

Wall Street clearly liked what it heard, and stock in the jump-started company more than doubled in value after the news came out on July 12, running up by 109% in mid-day trading that day, gaining $0.71 a share to $1.36, its highest level in years. More than 750,000 shares had changed hands by 1 p.m., in stark contrast to the hundreds that might be sold in a typical week.

“This is the best possible news. This is what we've been working so hard to achieve,” said Chestnut. We're a textiles company that survived, when so many out there are failing. It sure wasn't easy, but we did it.”

Under the terms of the refinancing that puts the company on a solid financial footing and a new growth trajectory:

  • The effective interest rate the company pays was slashed from the prime rate plus 1% to the prime rate minus 1%.

  • Total debt was reduced by 48.2% — to $12.6 million, paying 7.25%, from $24.4 million paying 11.65%.

  • Another $4 million in debt was forgiven by lenders, dropping off the books.

  • Perhaps most importantly, said Chestnut, warrants that might have given lenders a 70% stake in the company if exercised, were eliminated.

  • CIT Group/Commercial Services Inc. provided a new $22 million, three-year revolving line of credit at the highly favorable rate of 1% below the prime rate, part of which was used to retire debt.

  • After all the complex details of the deal, involving stock and warrants were worked out, the total number of shares outstanding holds steady at 9.5 million.

“You cannot imagine what all this means for the company, to have this kind of breathing room” said Chestnut. The new financing pact revitalizes a company that had gone through a catastrophic reversal of fortune during the past decade. Once racing along a fast track as a high-flying industry and stock market darling, Crown had grown to become the sixth largest company in the home fashions business, a leading supplier of adult and juvenile bedding, including the Royal Sateen and Calvin Klein franchises, and the dominant producer of once rocket-hot cotton jacquard throws.

But following a series of costly missteps, largely involving over-expansion of weaving and distribution capacity just when the cotton jacquard market imploded, the company was brought to its knees, forcing a costly recapitalization and the sale of key businesses, including the adult bedding business to former ceo Michael Bernstein and the woven products business to Mohawk Home.

Chestnut, who joined Crown as president after a stint at Beacon Mfg., the nation's largest blanket producer, built up Crown's juvenile and infants products business through a string of acquisitions, and following a shake-up and break-up of the company in 2000 and 2001 was left in charge. What had once been a highly profitable sideline at Crown overnight became its core business. Acting fast to stanch the bleeding, Chestnut shut down the company's costly Atlanta headquarters, shuttered the New York City showroom, moved corporate offices to Gonzales, La., and hacked away at headcount and payroll, reducing costs and dragging the company back from the brink of extinction.

At the same time, Chestnut shuttered virtually all of Crown's domestic manufacturing, except for the Churchill Weavers operation, a small niche producer of hand-woven decorative throws. “We are no longer a manufacturing company, we are a sourcing company,” said Chestnut. “And that sure saved our bacon.”

Now, sounding confident and secure, he added, “We're ready to rock and roll again. We can make acquisitions and we will. And we're good at it. Every acquisition that we made was highly profitable. And we'll start doing that again. We'll grow, but hear me out on this — it's the profits I'm most concerned about growing. We don't want to be big if we can't make money doing it. And you can bet that we will.”

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