Domino's called aggressive based on leverage, pricing; Qwest structure may suit junk, distressed

By Sara Rosenberg

New York, May 30 - Domino's Inc.'s proposed $685 million senior secured credit facility, which is scheduled to launch next week, seems a little aggressive to some based on the amount of leverage the company will have following completion of the deal and based on current price talk. Meanwhile Qwest Corp.'s proposed $1 billion term loan is creating somewhat of a buzz due to its unusual structure.

"It's an interesting deal. It looks like the equity sponsor (Bain Capital) is making a ton of money and leveraging more than people would like," a market professional said of the Domino's transaction. "It looks like total leverage will be in the range of five times with the revolver being undrawn. It's too bad that they're levering up that much.

"Maybe it will get done because Domino's has done so well. People have good feelings about having been paid down and seeing EBITDA improvement. But, fast food restaurants have been suffering the past six months. Will Domino's outperform that? Maybe they've got some reason to think EBITDA will rise. I have to listen to the call," the professional said.

The facility consists of a $560 million seven-year term loan B with price talk of Libor plus 350 basis points and a $125 million six-year revolver with price talk of Libor plus 325 basis points.

According to the market professional, the deal also seems aggressively priced given that it is rated B1 by Moody's Investors Service and B+ by Standard & Poor's.

However, there is one factor that may actually cause the most interest in the new deal - the possibility of an initial public offering in the future, the market professional continued.

"They (Bain Capital) still own equity. How could they make more money? By doing an IPO. They could say to the bank group that an IPO will happen when the market is right. If there's an IPO the design would be to delever so banks would probably get paid down."

JPMorgan is the lead bank on the Ann Arbor, Mich. pizza chain's deal

Security is a first priority lien on specified parcels of real property and tangible and intangible personal property, as well as a pledge of all of the company's capital stock, the capital stock of most of its material domestic subsidiaries and 65% of the capital stock of some of its foreign subsidiaries.

The new facility is part of a recapitalization plan and will replace the company's existing senior secured credit facility that was entered into on July 29, 2002.

Qwest's $1 billion four-year senior term loan, scheduled to launch on Tuesday, is expected to be aimed at high yield bond and distressed investors due to the fact that the loan is unsecured and has no amortization requirements.

The term loan is expected to be priced in the area of Libor plus 450 to 500 basis points, contain a 1½% to 2% Libor floor and offer an original issue discount of 98½ to 99, according to the market professional.

"I've got to believe that the average bank is going to look at that and say no. It's just a bond. And, as a bank loan it should be less liquid than a bond. But if it happens it will be a good indication of the market's willingness to finance the capital structure.

"It's hard to believe that they would propose the structure if they didn't think they could get it done. Qwest has been an improving credit in peoples' minds for a while now. A 7% floater in an improving credit should be attractive to some," the market professional said.

Merrill Lynch & Co., Credit Suisse First Boston and Deutsche Bank are the lead banks on the deal.

Proceeds will be used by the Denver telecommunications company to refinance bonds that are due in 2003.

Also launching next week is Riverwood Holdings Inc.'s $1.6 billion credit facility, which is scheduled for Thursday, according to a syndicate source. JPMorgan, Deutsche Bank, Goldman Sachs and Morgan Stanley are the lead banks on the deal.

The loan consists of a $400 million six-year revolver, a $350 million six-year term loan A and an $850 million seven-year term loan B, according to the syndicate source.

Proceeds will be used to help fund the merger between Riverwood and Graphic Packaging International Corp.

Riverwood is an Atlanta provider of paperboard packaging solutions to multinational beverage and consumer products companies. Graphic Packaging is a Golden, Colo. folding carton packaging supplier to the food, beverage and other consumable products markets.

And, yet another large deal slated for next week is Medco Health Solutions Inc.'s $1.15 billion senior secured credit facility via JPMorgan, Citigroup and Goldman Sachs.

The facility is expected to consist of a $250 million five-year term loan A with an interest rate of Libor plus 175 to 200 basis points, a $250 million five-year revolver with an interest rate of Libor plus 175 to 200 basis points and a $650 million eight-year term loan B with an interest rate of Libor plus 225 to 250 basis points, according to a filing with the Securities and Exchange Commission.

Security will be substantially all assets, other than the company's pharmaceutical manufacturer accounts receivable, including a pledge of the capital stock of the company's subsidiaries.

The Franklin Lakes, N.J. pharmacy benefits management company is obtaining this facility as part of its spin-off from Merck & Co. Inc. The spin-off is subject to a number of conditions, including the receipt of a favorable ruling from the U.S. Internal Revenue Service, the receipt of required regulatory approvals, final action by Merck to set the record date, distribution date, and distribution ratio for the spin-off, the effectiveness of the registration statement and payment by Medco Health to Merck of dividends aggregating $2 billion.

Proceeds from the term loans, combined with proceeds from a $500 million note offering and a $500 million accounts receivable financing facility, will be used to pay a portion of the cash dividend to Merck.

The revolver is expected to be undrawn at distribution and will be used for working capital and general corporate purposes.

In the secondary, Regal Cinemas Inc.'s term loan D broke for trading on Friday at above par levels, according to a trader.

The $315 million tranche (Ba2/BB-) due in 2009 is priced with an interest rate of Libor plus 250 basis points.

Credit Suisse First Boston is the lead bank on the Centennial, Colo. theaters circuit's deal, which will be used to help fund the acquisition of certain theatre and real estate assets from United Artists and acquisition of NGN assets, and pay a portion of an extraordinary dividend to the company's stockholders of approximately $4.35 to $4.55 per share of Class A and Class B common stock.

In follow-up news, Williams Production RMT Co. closed on a $500 million four-year secured term loan B (B2/BB/BB+) with an interest rate of Libor plus 375 basis points. The deal was increased from an original size of $400 million.

The term loan refinances a portion of a $1.17 billion secured obligation to a group of investors led by a subsidiary of Berkshire Hathaway Inc. that Williams retired today with proceeds from recently closed asset sales and funds from the new loan.

Security for the loan is the company's exploration-and-production interests in the U.S. Rocky Mountains.

"Williams is in a better position today than it was last summer. Our finances have significantly improved and our commercial focus is much sharper. Retiring this loan early is an indication of our progress," said Steve Malcolm, chairman, president and chief executive officer, in a news release.

Lehman Brothers was the lead bank on the Denver oil and gas company's deal.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.