Krispy Kreme Stocks Hit New Low on Bankruptcy Fears

Shares of Krispy Kreme Doughnuts Inc. (KKD) slid 16 percent to an all-time low on Thursday as investors fretted that the once high-flying doughnut chain may be headed for bankruptcy, analysts said.

Krispy Kreme, hard-hit by sluggish doughnut sales and a Securities and Exchange Commission (search) accounting probe, warned this week of a possible cash crunch if it is not able to secure additional funding by the end of March.

"One of the ultimate threats is to force the company into bankruptcy," said Morningstar Inc. analyst Carl Sibilski. "It's definitely on the table."

A Krispy Kreme spokeswoman declined to comment. The company this week said it was slashing 25 percent of its staff outside retail outlets. It also sold its corporate jet to cut costs.

The company's stock, once a Wall Street darling, has lost over 80 percent of its value in the last year.

Last month, Krispy Kreme averted defaulting on a $150 million credit facility after its lenders agreed to give it until March 25 to prepare its financial statements. But by that time, Krispy Kreme said, it will need additional credit to fund its operations.

One of the problems facing investors, Sibilski said, is that it is unclear how much money Krispy Kreme may have to put up to cover bad loans to franchisees.

"We know exactly how much they are on the hook for officially, but through back door agreements we don't know," Sibilski said.

In the meantime, Krispy Kreme said in a regulatory filing on Thursday it will pay turnaround firm Kroll Zolfo Cooper LLC (search) $400,000 a month as well as a still-undetermined fee if the group succeeds in restoring the chain's financial health.

The Winston-Salem, North Carolina company hired Kroll Zolfo last month and named its chairman, Stephen Cooper, as CEO, replacing Scott Livengood. Steven Panagos, head of Kroll Zolfo's restructuring practice, was named president and chief operating officer.

But Cooper and Panagos, whose respective hourly pay rates of $760 and $695 are included in the monthly fee Krispy Kreme will pay Kroll Zolfo, will not be devoting all their time to the doughnut chain, Krispy Kreme said.

"It is hereby understood and agreed that neither Cooper nor Panagos shall devote his full time to this engagement," Krispy said in the filing.

In addition to his job at Krispy Kreme, Cooper is overseeing the dismantling of scandal-ridden energy trader Enron Corp.

Krispy Kreme said Cooper and Panagos will not be able to hire or terminate company officers or execute transactions beyond the normal course of business without approval of the board of directors.

Krispy Kreme shares fell $1.15 to close at $6.06 Thursday on the New York Stock Exchange (search) after hitting an all-time low of $5.85 earlier in the session.