Woodward & Lothrop Inc., taking advantage of lower interest rates, is planning to refinance all of the $300 million debt that the retailer incurred last year when it was acquired by Michigan real estate magnate A. Alfred Taubman.
In documents filed with the Securities and Exchange Commission, Woodies said it planned to sell $130 million of subordinated notes to large financial institutions as part of a three-pronged effort to obtain longer-term borrowings at lower interest rates than the floating rates the company now pays on short-term debt Taubman incurred to buy the company for $227.5 million.
Under the original credit agreement arranged with a consortium of banks, Taubman borrowed a total of $284.5 million, paying an interest rate of 1 1/2 percentage points above the prevailing prime rate. Today the prime rate is 9.5 percent.
The subordinated notes, along with two other financial transactions, will replace the original agreement that called for complete repayment within five years.
"It was always our intention to repay the banks for the money we borrowed initially," said Bernard Winograd, executive vice president of the Taubman Investment Co. Inc. "We were borrowing at a floating rate of interest and wanted to convert to a fixed rate to eliminate any risk."
Additionally, Woodies officials noted, the loan agreements limited Woodies to $7 million in capital expenditures a year. That would have made it difficult for the company to fulfill its $22.5 million plan to redevelop and renovate its downtown properties.
Without the refinancing, "it would have been difficult to renovate the properties in the time frame we wanted," said Woodies Vice Chairman Robert Mulligan.
With Taubman's purchase of Woodies last September -- an acquisition opposed by a group of stockholders who were descendants of the chain's founders -- Woodies no longer was a publicly held company, required to disclose annual sales or profits.
However, by notifying the SEC of its refinancing plans, Woodies was forced to disclose last year's results for the 16-store chain.
Woodies' 1984 sales totaled $451 million, a 12 percent increase over 1983. However, the chain lost $1.1 million last year, compared with a $14.5 million profit in 1983.
Woodies officials attributed the loss to the expenses of the acquisition, estimated in previous SEC documents to be about $16 million, plus higher interest rates incurred for the last four months of its fiscal year as a result of the sale.
Given its large debt load, Woodies said the company will not be profitable in 1985, either. Because the company is so highly leveraged, Woodies noted that its offering of subordinated notes -- which will be unsecured and not entitled to any guarantees -- entails certain risks for investors.
"The company's highly leveraged financial condition could adversely affect its ability to obtain additional outside financing for working capital," Woodies said.
In other data, the document revealed that Chairman Edwin K. Hoffman earned $506,000 last year, President David P. Mullen earned $343,000 and Vice Chairman Mulligan earned $302,000.