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The Brick rebounds, repurchases 12% bonds

The Brick's Heartland location in Mississauga, December 2, 2010.

J.P. MOCZULSKI/The Globe and Mail

Almost three years after The Brick Ltd. went searching for desperately needed capital, the mattress and furniture retailer has the financial wherewithal to get its balance sheet back in order.

This process began last fall when The Brick started repurchasing shares and warrants to offset the dilutive effect of the big recapitalization in May 2009. Under the latest normal course issuer bid, all of the eligible outstanding warrants have already been bought back.

But the big step came on Monday when the firm announced that it has reached an agreement with its two biggest bondholders, Fairfax Financial Holdings and William Comrie, to repurchase a substantial majority of its outstanding debentures that pay 12 per cent annually and once totalled $120-million.

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Last quarter, The Brick made it clear that it hoped to repurchases these bonds, but at that point it didn't have support agreements with the biggest holders, and it had no call provisions. A few months later the firm announced it was able to buy back about $10-million of them, and on Monday it made the even bigger announcement. Fairfax and Mr. Comrie will receive $1,140 for each $1,000 principal amount held.

The Brick can make these payments because the company is quickly turning around. Rather than focus on lower margin electronics, whose sales have been weaker, The Brick has shifted its focus to higher margin mattresses. The results have been drastic: earnings before interest, taxes, depreciation and amortization during the first nine months of 2011 grew 19 per cent to $78-million, even though same store sales, including franchise sales, were down about 1 per cent.

Such growth has beefed up The Brick's cash position, which sat at $140-million at the end of last quarter, up from $45-million a year earlier. That gives it flexibility to buy back securities and to also withstand and fluctuations in consumer spending.

The company's financial standing has been so strong that it hasn't touched its asset-backed credit facility since March 2010, and earlier in March it announced a new 5-year, $100-million facility, led by Bank of Montreal.

All of this change comes as top management shuffles. As of January 1, Vi Konkle took the reins at The Brick, replacing Bill Gregson who became the new executive chairman. Mr. Gregson had been CEO since July 2009. Before joining The Brick, Ms. Konkle had been chief operating officer of Wal-Mart Canada.

The Brick's year-end financial statements will be released on March 20.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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