National Convenience HBS Case
NICHOLAS LANDRY
WILL MACHADO
JO WEN
JON WIKSTROM
Van Horn’s Storied Past
•National Convenience Stores
• top 20 in U.S. in size
• 725 stores in 6 cities: Houston, San Antonio, Dallas Ft.
Worth, Austin, Los Angeles, Atlanta
• gas, lottery, alcohol, & other high inventory turnover items • customers stop in for a few items and want fast service
•President & CEO Pete Van Horn Strategy
• superior quality products
• remodel stores according to 3 demographics
• eateries
• value pricing strategy
Liquidity Trouble
•NCS liquidity trouble
•
mixed results from Van Horn’s Strategy
• terms loans 1985 - 1988, E/D from 2.5 to 4.6
• asset sales and sale/leasebacks
•Unforeseen Events
• escalating costs of State of Texas worker’s compensation
• Gulf War
• gas price war between major oil companies
• heavy rainfall, twice normal weather
•Last Ditch Efforts
• unable to sell California stores
• unable to get equity infusions through strategic partners
• was able to defer principal payments
• defaults on $170 million in debt, loses vital trade credit
Chapter 11 Reorganization
•Chapter 7 Bankruptcy
•
usually involuntary, forced upon by creditors
• Van Horn claims (threatens) that liquidating company will yield
$83.610 million
•Ch 11 is voluntary: needs cash for inventory
• Bankruptcy Court, Debtor in Possession financing
• $8 million line of credit
•Major Cuts
• 986 stores to 725, 6500 employees to 4800
• lease rejections
• closed NCS Food Distribution System
• reduced net operating expenses by $30 million
• $168 million of Restructuring and special charges in 1992
Stakeholders
•Absolute vs Relative priority
•Secured claims ($159 million)
prefer a low a value
•Senior unsecured claims ($88 million)
•12.5% junior debtholders, 9% debtholders
•Junior Debt: 12.5% & 9% Debt ($40 & 16 million)
•vultures purchased $16 million at 80-85% off face value
•equity: likely wiped out including ESOP
•management
•cramdown
WILL MACHADO
JO WEN
JON WIKSTROM
Van Horn’s Storied Past
•National Convenience Stores
• top 20 in U.S. in size
• 725 stores in 6 cities: Houston, San Antonio, Dallas Ft.
Worth, Austin, Los Angeles, Atlanta
• gas, lottery, alcohol, & other high inventory turnover items • customers stop in for a few items and want fast service
•President & CEO Pete Van Horn Strategy
• superior quality products
• remodel stores according to 3 demographics
• eateries
• value pricing strategy
Liquidity Trouble
•NCS liquidity trouble
•
mixed results from Van Horn’s Strategy
• terms loans 1985 - 1988, E/D from 2.5 to 4.6
• asset sales and sale/leasebacks
•Unforeseen Events
• escalating costs of State of Texas worker’s compensation
• Gulf War
• gas price war between major oil companies
• heavy rainfall, twice normal weather
•Last Ditch Efforts
• unable to sell California stores
• unable to get equity infusions through strategic partners
• was able to defer principal payments
• defaults on $170 million in debt, loses vital trade credit
Chapter 11 Reorganization
•Chapter 7 Bankruptcy
•
usually involuntary, forced upon by creditors
• Van Horn claims (threatens) that liquidating company will yield
$83.610 million
•Ch 11 is voluntary: needs cash for inventory
• Bankruptcy Court, Debtor in Possession financing
• $8 million line of credit
•Major Cuts
• 986 stores to 725, 6500 employees to 4800
• lease rejections
• closed NCS Food Distribution System
• reduced net operating expenses by $30 million
• $168 million of Restructuring and special charges in 1992
Stakeholders
•Absolute vs Relative priority
•Secured claims ($159 million)
prefer a low a value
•Senior unsecured claims ($88 million)
•12.5% junior debtholders, 9% debtholders
•Junior Debt: 12.5% & 9% Debt ($40 & 16 million)
•vultures purchased $16 million at 80-85% off face value
•equity: likely wiped out including ESOP
•management
•cramdown