Circuit City's Surpise Huge Jump In Credit Facility (CC)

Circuit City Stores, Inc. (NYSE: CC) has an interesting filing this morning, and we are frankly surprised about it.  If there is one technology retailer that has screwed up its operations and that has a CEO that needs to go, it is Circuit City.

But this filing shows that maybe some larger lenders still believe in the beleaguered tech retailer.  On January 31, 2008, Circuit City entered into a second amended and restated credit agreement.  The banks named in the agreement are Bank of America, as administrative agent and collateral  agent; Banc of America  Securities,  LLC, as lead arranger and joint bookrunner, Bank of America, N.A., as Canadian administrative agent and Canadian collateral agent.  Wells Fargo was listed as syndication  agent and joint bookrunner.  GE Capital Corporation and JPMorgan Chase are listed as co-documentation  agents.  Wachovia was listed as senior managing agent. 

This credit agreement amends and replaces the prior July 8, 2004 agreement that permitted an aggregate borrowing of up to $500 million.  This new Credit Agreement increases borrowing allowances, appoints a new administrative agent and collateral agent, and it extends the expiration date from June 27, 2009 out all the way to January 31, 2013.

This new credit agreement is for up to $1.3 Billion. Of this amount, up to $50 million is available for its InterTAN Canada Ltd.  The aggregate limit also includes a $60 million limit on swingline loans and a $350 million limit on standby and documentary letters of credit and banker’s acceptances.  The credit agreement also provides Circuit City with an option to request an increase in the aggregate borrowings limit in an amount not to exceed $300 million.

This facility, if tapped, will still continue to be secured primarily by its inventory and credit card receivables.  As of February 4, 2008, the dollar amounts outstanding under the credit agreement were listed as approximately $49.7 million.

Shares are not impacted as this is merely a credit facility and not any official capital raise.  But we are still surprised to see an increase of this size.  After this company’s poor financial performance and critical management missteps, and after its horrible financial results, we are surprised it was able to more than double its credit facilities.  If things were going great and if the economy was humming along smoothly, this would otherwise be nothing more than a mere footnote.  It’s hard to know if the company is about to go tap a new round of financing or if it is just lining this up "just in case."  Either way, this was a large enough move to catch our interest.

After the open today, shares are down 1% to $4.84 and the 52-week trading range is $3.47 to $22.02.

Jon C. Ogg
February 6, 2008