It€™s late Tuesday evening, and you€™ve just received a phone call from Dennis Whiting, your boss at GE Capital. Dennis wants to know your reaction to the Argenti loan request before tomorrow€™s loan committee meeting. Here€™s what he tells you:
We€™ve provided seasonal loans to Argenti for the past 20 years, and they€™ve always been a first- rate customer, but I€™m troubled by several recent events. For instance, the company just reported a $141 million loss for the first quarter of 2014. This loss comes on top of a $237 million loss in 2013 and a $9 million loss in 2012. What€™s worse, Argenti changed inventory accounting methods last year, and this change reduced the 2013 loss by $22 million. I can€™t tell if the company€™s using other accounting tricks to prop up earnings, but I doubt it.
I believe Argenti€™s problem lies in its core business€”customers just aren€™t buying its merchandise these days. Management€™s aggressive price discount program in the fourth quarter of 2013 helped move inventory, but Argenti doesn€™t have the cost structure needed to be competitive as a discounter. Take a look at the financials I€™m sending over, and let me know what you think.
Argenti Corporation operates a national chain of retail stores (Argenti€™s) selling appliances and electronics, home furnishings, automotive parts, apparel, and jewelry. The company€™s first store opened in New York City in 1904. Today, the company owns or leases more than 900 stores located in downtown areas of large cities and in suburban shopping malls. Customer purchases are financed in house using ArgentiCredit cards. The company employs more than 58,000 people.

The Seasonal Credit Agreement with GE Capital€”dated October 4, 2013€”provides a revolving loan facility in the principal amount of $165 million. The purpose of this facility is to provide backup liquidity as Argenti reduces its inventory levels. Under the credit agreement, Argenti may select among several interest rate options, which are based on market rates. Un- less GE Capital agrees, loans may be made under the seasonal credit facility only after the commitments under the company€™s other debt agreements are fully used.

Note to Financial Statements (2013 Annual Report)
The company intends to improve its financial condition and reduce its dependence on borrowing by slowing expansion, controlling expenses, closing certain unprofitable stores, and continuing to implement its inventory reduction program. Management is in the process of reevaluating the company€™s merchandising, marketing, store operations, and real estate strategies. The company is also considering the sale of certain operating units as a means of generating cash. Future cash is also expected to continue to be provided by ongoing operations, sale of receivables under the Accounts Receivable Purchase Agreement with GE capital, borrowings under revolving loan facilities, and vendor financing programs.

Required:
1. Why did Argenti need to increase its notes payable borrowing to more than $1 billion in 2013?
2. What recommendation would you make regarding the company€™s request for a $1.5 billion refinancingpackage?

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Argenti Corporation Balance Sheets and Selected Other Data ($ in mlilians) 2013 2012 2011 2010 2009 S 35 S3836 Cash and securities Receivables Inventories Other current assets 117 S 92 47 1,038 166 1,545 1,770 1,242 6 1.779 ー 1,806 1,308 Property, plant, and equipment net Investments Other assets 1,366 345 1,177 1,425 1,263 296 851 1,489 1,222 277 445 1,448 048 $4,879 $4884 S4537 S383 $3,433 Liabilities and shareholders' equity $1,028 160 144 1,955 1.248 3,347 0 S 0 1,399 1,148 2,547 125 208 Notes payable 2,040 1,201 3,401 423 185 175 1,595 1,204 2,799 Accounts payable 1,812 1,232 4,072 Accrued expenses Long-term debt Other liabilities Preferred stock Common stock Retained earnings Less: Treasury stock 112 175 0 23 750 768 661 583 (139)4 (89) 73) (46) $4,879 $4,884 S4537 3,835 $3,433 Selecte Sales Cost of goods sold d earnings and cash flow data $6,620$%7,085 S7,029 6,023 4,258 1,765 101 132 23 $5,806 4,047 1,759 60 157 4,869 1,751 (237) 5,211 1,874 5,107 1,922 137 153 24 Gross margin Net income Operating cash flow Dividends (182) 4 Quarterly Income Mar. 14 $1,329 997 332 (141) 25.0% ( 10.6)% Dec. 13 Sep. 13 Jun. 13 Mar. 13 $ 2,084 1525 559 (165) 26.8% (7.9)% 1,567 ,096 471 (35) 30.1% (2.2)% $1,534 1.210 324 $ 1,435 1,038 397 (48) 27.7% (3.3)% Sales Cost of goods sold Gross profit Net income Gross profit (% sales) Net income (% sales) 21.1% 0.7%