Home Interiors & Gifts to launch $370 million credit facility Thursday

By Sara Rosenberg

New York, March 1 - Home Interiors & Gifts Inc. is scheduled to hold a bank meeting on Thursday for a proposed $370 million credit facility. JPMorgan and Bear Stearns are the lead banks on the deal with JPMorgan listed on the left, according to a company spokesman.

The facility consists of a $320 million term loan and a $50 million revolver, according to an 8-K filed with the Securities and Exchange Commission on Friday.

Proceeds will be used to refinance about $169.8 million of existing senior debt, to repurchase all approximately $139 million or a portion of the company's outstanding convertible preferred stock, for general working capital purposes and to pay transaction fees and expenses.

On a pro forma basis after giving effect to the refinancing and the anticipated use of the proceeds from the refinancing, as of Dec. 31 the company would have had about $474.6 million in total debt, compared to about $323.2 million in total debt as of Dec. 31 on an actual basis, the filing added.

On Monday, Standard & Poor's rated the credit facility at B with a recovery rating of 2, indicating an expectation of substantial recovery of principal in the event of a default. Furthermore, S&P lowered the company's corporate credit rating to B from B+ due to increased debt leverage as a result of the proposed refinancing. The outlook is stable.

"The ratings are based on the high level of business risk associated with Home Interiors' direct-sales business model as well as the company's aggressive debt leverage," S&P explained.

EBITDA coverage of interest expense was 3.6x at year-end 2003, versus 3.8x in 2002. Pro forma for the refinancing, it is expected that total debt to EBITDA will be in the 4.5x to 5.0x range and that EBITDA coverage of interest expense will be below 3x, according to S&P.

On Friday, Moody's Investors Service rated the facility B2 and changed its outlook to stable from positive.

"HIG's ratings reflect its inconsistent operating performance, thin asset coverage, the discretionary nature of the company's decorative products, the increase in new displayers who are usually less productive than seasoned displayers, and the inherent business risks of a direct seller.

"The ratings also consider the good debt protection measures for the rating category despite the increase in leverage as a result of the recapitalization, the strong level of on-balance sheet cash, the company's 40 year history, and the opportunities and risks presented by new business areas including; the new Better Homes and Gardens product line, international growth, and the expansion of in-house manufacturing and Domistyle," Moody's said.

Home Interiors & Gifts is a Dallas integrated manufacturer and distributor of home decorative accessories.

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