Archibald Candy Corp., the beleaguered parent of Fannie May and Fanny Farmer candy stores, sought bankruptcy protection from its creditors Wednesday.
As part of the Chapter 11 filing in Delaware, Archibald has reached an agreement with creditors on a reorganization plan, in which bondholders will swap most of their $170 million in long-term debt for equity in the company.
The venerable, Chicago-based candy retailer, well known for its Pixies, Mint Meltaways and Trinidads confections, has struggled under weakening sales and a heavy debt load related to its leveraged buyout about 10 years ago and later acquisitions of other candy-store chains.
But with a new financial structure, Archibald is looking for a fresh start. Chief Executive Ted Shepherd said in a statement that the company will introduce more than 100 new products at its stores starting this fall. He gave no specifics, but industry experts said ice cream will likely be among the new offerings to help reduce the seasonal nature of the candy business.
Under the reorganization plan, the company said, it has no plans to close any of its 279 Fannie May and Fanny Farmer stores, including 106 in the Chicago area. Archibald also promised its approximately 6,000 employees–a third of them in the Chicago area–that no layoffs are planned.
In addition, the company can now resume paying suppliers because it has lined up a $45 million line of credit with lenders Foothill Capital Corp. and Ableco Finance LLC. Given the prepackaged filing, Shepherd said he expects the company to come out of bankruptcy within four months.
Analysts said the prearranged restructuring plan was a positive step for Archibald, but that the company is by no means out of the woods.
“This should clean up their capital structure,” said Mary Ross Gilbert, senior investment analyst at Imperial Capital LLC, a Beverly Hills, Calif.-based investment bank that specializes in distressed securities. “What lies ahead is can they execute the business plan and turn around the company.”
Archibald has been under pressure to restructure operations since last fall when one of its candy-store chains, Sweet Factory, filed for Chapter 11 protection in November.
Sweet Factory was part of a string of acquisitions that Archibald’s majority owner, New York-based private equity firm Jordan Co. LLC, made in the 1990s as it attempted to consolidate the highly fragmented candy-store industry.
Jordan’s first purchase was Fannie May, the Chicago retailer that started with a shop on LaSalle Street in 1920. A year later, in 1992, Jordan bought Fanny Farmer.
Then came San Diego-based retailer Sweet Factory in 1998 for $28 million. Finally Jordan expanded into Canada a year later with the acquisition of Laura Secord. The Canadian operations are not involved in Wednesday’s bankruptcy filing.
The last two deals more than doubled the size of Archibald, from 322 stores in 1997 to 727 two years later.
But the dealmaking saddled the company with a great deal of debt, most of it in the form of $170 million in bonds. The interest owed on the debt, $19.1 million in 2001, became too much to bear when sales started slowing down in 1999. Archibald lost $41.5 million in fiscal 2001 ended Aug. 25 on sales of $249.1 million. The year before, the company lost $15.3 million on sales of $253.4 million.
The main culprit was the Sweet Factory, which, unlike Fannie May, specializes in non-chocolate candy such as gummy bears and jelly beans. Bulk candy has become a commodity business and chains like Sweet Factory have faced competition from grocery stores and mass merchants like Target and Wal-Mart. Archibald has closed about 155 unprofitable Sweet Factory stores since 1999 and plans to auction off the chain.
Archibald’s financial crisis worsened in January when it defaulted on its bonds and missed a key payment on its preferred stock.
The company did not say how much of the company the bondholders will own under the reorganization plan.