Krispy Kreme Doughnuts Inc, the No 2 US doughnut chain, will get a loan from Credit Suisse First Boston and hedge fund Silver Point Capital LP to avoid defaulting on its credit line, people familiar with the situation said.

CSFB is arranging the financing after the company's lenders froze a US$150 million credit line because Krispy Kreme failed to meet a deadline to disclose earnings. A US Securities and Exchange Commission probe of Krispy Kreme's accounting prompted the company to say it would issue revised results for 2004.

Krispy Kreme expects to have enough financing to operate "for the foreseeable future" lined up by April 11, the company said in a statement filed with the SEC after US markets closed on Monday. The announcement came three days before March 31, a date Chief Executive Officer Stephen Cooper had said the company might run out of cash. The company did not say who would provide the new loan.

"It is a double-edged sword," said Ron Glass, a principal at GlassRatner Advisory and Capital Group LLC in Atlanta, which advises companies in distress. "The good news is it will make their debt current and allow them to pay some outstanding bills to critical vendors. More than likely the bad news is the cost of the capital will be far greater."

Krispy Kreme had borrowed about US$91 million as of October 31. A US$225 million loan from Credit Suisse and Silver Point will replace Krispy Kreme's current credit line, website Debtwire reported March 25, citing three people it did not identify.

Credit terms could be set as soon as this week, one person familiar with the situation said. Credit Suisse First Boston spokesman Pen Pendleton, Silver Point spokeswoman Magda Guillen and Krispy Kreme spokeswoman Amy Hughes all declined to comment.

Krispy Kreme has not been able to draw on its credit because it has not reported audited results for the third quarter ended October 31. The company's lenders led by Wachovia Corp delayed a possible loan default on March 25 by giving Krispy Kreme an extension until April 11 on filing the results.

"Basically Wachovia is saying your credit and your accounting concerns us so we don't want to be your lender any longer," Glass said.

Wachovia spokeswoman Sarah Greene did not return a call for comment.

Krispy Kreme's shares rose more than ninefold after an initial public offering in April 2000, then dropped 66 per cent last year as the company had its first quarterly loss and Chief Executive Officer Scott Livengood withdrew profit and sales forecasts.

Shares of Krispy Kreme, based in Winston-Salem, North Carolina, fell 13 US cents to US$8.63 on Monday in New York Stock Exchange composite trading.

(China Daily 03/30/2005 page12)