In an effort to bail itself out of massive debt, Cardis Corp. has won agreements in principle to extend loans from Security Pacific National Bank, the Buena Park firm announced Tuesday.
The auto parts wholesaler also said it has reached a new credit arrangement with various trade vendors who are owed about $21 million and represented by a national trade group, the Motor & Equipment Manufacturers Assn. The trade agreement is intended to give Cardis a steady supply of goods on normal credit terms. It also provides for a $10-million increase in merchandise credit.
The loan extension and trade agreement mark a major step by Cardis to restructure and pull itself toward profitability. The company has been losing money for more than a year.
Cardis, which is saddled with more than $100 million in debt, has been negotiating for some time to extend the Security Pacific loans. The company is past due on a $34-million payment to Security Pacific, out of total debt to the lender of $72.8 million.
Came as No Surprise
The loan extensions came as no surprise to analysts, who hailed the move as a step in the right direction. "The banks and trade creditors have no choice but to work with the company," said Blake Childs, a research analyst in Los Angeles with Bateman Eichler, Hill Richards.
"(Cardis) is worth more as a going concern than in liquidation. . . . This seems to be moving toward the more obvious solution," Childs said.
Under the agreement announced Tuesday, Security Pacific has agreed to extend the terms of its existing loan to Cardis through Jan. 31, 1989. The agreement also provides for principal reductions during 1988, starting with a principal payment of $20 million on Feb. 28.
Cardis plans to make the Security Pacific payments from, among other things, the sale proceeds of its profitable Tuneup Masters subsidiary.
The anticipated sale of Tuneup Masters for $82.2 million to a New York-based investment group has been extended from Nov. 30 to Dec. 31. Cardis is continuing to negotiate with the buyers, a spokesman said.
In addition to the payments to Security Pacific, Cardis has said it will use some of the sale proceeds to pay off a $43.5-million loan from Dresdner Bank, a West German institution.
Return to Profitability
A. Michael Victory, chairman and chief executive of Cardis, said the company should return to profitability by the end of the first calendar quarter of 1988.
Cardis has been trying to cut its losses by reducing operating costs and trimming inventory through 1987. Jack I. Salzberg resigned this month as chairman and chief executive and was replaced by Victory, whom one observer described as "more operationally oriented."
For the fiscal 1988 first quarter ended July 31, 1987, Cardis reported a net loss of $5.9 million on sales of $59.1 million. For the 18 months ended April 30, the company reported a loss of $35.5 million. The long reporting period reflects a change in Cardis' fiscal year.