Those Write-Offs At KinderCare

Excerpts: “Those Write-Offs At KinderCare”

  • Watching with what must have been some nervousness were the principals of the Lodestar Group, an investment banking boutique that is underwriting an unusual recapitalization and split-up of the two companies.
  • Lodestar could end up on the hook for up to $160 million if KinderCare’s share price falls below $5.75 in the next few months. Yesterday, the price fell 25 cents, to $7, trading as low as $6.625, its lowest price since 1982.
  • For Lodestar, a successful deal would help to establish its own reputation. The KinderCare reorganization is the first public deal for the firm, whose chairman is Robert Baldwin, the former chief executive of Morgan Stanley.
  • Mr. Gearreald and Ken Miller, Lodestar’s president, were senior investment bankers at Merrill Lynch.
  • Under the pending deal, an owner of 100 shares of KinderCare Inc. would be given rights to buy 51 additional shares of the company, at $5.75 each. If those rights are not exercised, Lodestar would be committed to buy the new shares.
  • After the rights offering is completed, the learning centers’ shares will be spun off to owners of the parent company’s stock, at a ratio of one share of learning centers for each two shares in the parent.
  • When all is done, probably in September, there will be two independent companies. The parent will have about $100 million in cash plus a growing specialty retailer, a large savings and loan and a life insurance company. Yesterday’s announcement was of a $35 million write-off at the insurance company, traceable to problems as a sponsor of tax-shelter partnerships.
  • The learning center company will again be a pure play in day care, having sold off its investments in junk bonds and high-yield preferred stock. It is plans for those sales that led to yesterday’s announcement of a $18 million write-down in the value of the portfolio, which cost $83 million.

Source: New York Times