C&K Market
The Business: C&K Market, Inc., established in 1956, operates a diverse size and style of supermarkets in mainly small, rural communities in Western Oregon and Northern California. C&K operates stores under three different trade names: Ray’s Food Place stores, which are conventional, full service stores and Ray’s Shop Smart Food Warehouse and PriceLess Foods stores, which offer everyday low pricing in the “box store” or warehouse format.
Of its 49 stores, C&K has the number one market position in 30 locations and is tied for the number one market position in four other locations. The population of cities where C&K has stores is typically under 5,000 with a population reach of 10,000 to 20,000, which has enabled it to post a stable record of increasing earnings over the last several years despite industry trends that favor much larger competitors.
The Problem: C&K's owner sought to gain some liquidity and organize his estate through a transfer of his 90% ownership interest to his son and management in a recapitalization transaction. Due to competitive issues facing supermarkets in urban centers nationally, the agent had difficulty placing the securities with traditional capital providers.
The Solution: Catalyst crafted a $16 million investment in the form of junior secured subordinated debt. As a result of the investment, C&K was able to successfully complete its recapitalization and was provided with the necessary liquidity for its continued growth.
Color Spot Nurseries
The Business: Color Spot Nurseries, founded in 1983, is one of the largest wholesale nurseries in the United States, based on revenue and greenhouse square footage. The Company provides its customers a wide assortment of high quality plants as well as extensive merchandising services.
Currently, Color Spot grows and distributes over 2,500 varieties of live plants, including bedding plants, shrubs, flowering potted plants and ground cover. Most of Color Spot’s products are sold under the Color Spot brand name, and include easy-to-read labels containing growing instructions and a color picture of a mature plant. The Company’s current customer base includes over 2,800 retail customers as well as over 1,000 commercial customers, representing over 10,000 locations, primarily in the western and southwestern regions of the United States. Major customers include Home Depot, Wal-Mart, Kmart, Lowe’s and Rite Aid. The Company operates nursery production facilities in California and Texas.
The Problem: Driven by the impending maturity of its credit facilities, Color Spot recapitalized its balance sheet by converting substantially all of its unsecured subordinated debt and preferred stock into common stock. The holders of Color Spot’s bonds and preferred stock took control of the Company from the common shareholders in order to influence its senior lender and Catalyst to invest capital in the restructuring. As a result of the conservative lending environment, Catalyst had the opportunity to invest capital in a large, fundamentally sound company in a security that generates equity returns while providing a secured status in the capital structure. Additionally, the combination of the collateral value of Color Spot’s assets and a conservative estimate of its enterprise value provides meaningful protection for Catalyst’s investment in a downside scenario.
The Solution: Catalyst was able to fund the gap in the restructuring by investing $30 million in the form of senior secured subordinated senior notes. The recapitalization provided Color Spot with the necessary availability on its revolving credit facility ($20 million) at the close of the restructuring. The transaction also aligned ownership’s financial incentives with the rest of the capital structure’s focus on generating cash rather than using cash to generate growth.
Tropitone Furniture
The Business: Tropitone is a leading manufacturer of high-end outdoor casual furniture, and for nearly 50 years and three generations, it has been a family owned company. Over this period, the company has successfully developed one of the strongest brand names in the segment and built an extensive national dealer network for its products. Typical commercial customers include hotels, resorts and country clubs while retail customers consist of regional specialty patio stores, design centers, and full line furniture retailers. Products are also carried in approximately 30 independent designer showrooms selling the company’s premium quality and higher priced products.
With $65 million in annual revenue, the company is the only competitor with manufacturing facilities on both coasts. These two facilities provide significant competitive advantages for production efficiencies and lower freight costs in selling products nationally.
The Problem: The company’s senior debt was up for renewal, however the lender had been acquired by another bank, which was not willing to renew the credit facility. While management was able to secure a new lender, the amount of the new credit facility was $5 million less than what was needed. Tropitone’s only solution to this funding gap seemed to be raising equity. However, as a family owned business, Tropitone wanted to avoid diluting its family ownership.
The Solution: Catalyst solved Tropitone’s problem by providing a $5 million investment in the form of subordinated debt. The structured equity solution covered the financing gap and enabled the family ownership of the company to remain intact while Catalyst garnered its required return through enhanced current yield.
Creative Optics
The Business: Creative Optics, Inc. is a designer, marketer and distributor of eyeglass frames. The Company sells its products under brands that include those licensed from well-established consumer and designer names as well as brands internally developed and owned by the Company. Led by a management team consisting of industry veterans, Creative built one of the top portfolios of brand names in the eyeglass frame market. Creative sells its products into two specific distribution channels: independent opticians, and large retail chains. Key customers in this segment include Pearle, Cole, Wal-Mart, Costco and Target.
The Problem: At the time Creative Optics contacted Catalyst, the Company was owned by a private equity investment firm, which had purchased Creative to implement an acquisition growth strategy. When management realized that completing its growth strategy would require additional capital and its existing equity sponsor could not supply all of the required capital, they turned to Catalyst for support.
The Solution: Catalyst worked with management and the existing equity sponsor to craft a $7 million investment in the form of preferred stock with the existing owners providing $2 million. As a result of the combined investment, management was able to successfully complete the implementation of its acquired properties. This led to the creation of additional equity value benefiting both management and its equity partners. The business was ultimately sold to a foreign strategic investor who wished to enter the U.S. eyeglass market. The management team and employees of Creative became the platform for their foreign owner to grow its U.S. business. Today, Creative has grown to twice its size and is healthy and profitable.
