Brand Services, Kerasotes new loans meet some resistance in finicky bank market

By Sara Rosenberg

New York, Sept. 23 - Brand Services Inc. resurfaced on Monday with the launch of its new $220 million credit facility. Also hitting the primary was Kerasotes Theaters Inc.'s $170 million credit facility. Both deals were met with a bit of skepticism by some market participants - highlighting the finicky investor attitude that has been pervasive in the current market - due to various issues, including Brand Services' light pricing and Kerasotes' use of proceeds and free cash flow balance.

Brand Services $220 million credit facility consists of a $50 million six-year revolver with an interest rate of Libor plus 300 basis points, a $150 million seven-year term B with an interest rate of Libor plus 350 basis points and a $20 million six-year letter of credit facility with an interest rate of Libor plus 350 basis points.

"It's a good credit but underpriced," a buy-side source told Prospect News. "I think this will have to break 400 before it gets done. It's B1 rated. Just look at Kerasotes, which is 400 and is also B1. I won't commit at this level."

Credit Suisse First Boston and JPMorgan are the lead banks on the deal.

Proceeds will be used to help finance the purchase of the St. Louis, Mo. scaffolding company by J.P. Morgan Partners from DLJ Merchant Banking.

Kerasotes Theaters held a bank meeting regarding its new $170 million credit facility consisting of a $100 million six-year term loan B with an interest rate of Libor plus 400 basis points and a $70 million five-year revolver with a grid-based interest rate that is still to be determined, according to a syndicate source. Deutsche Bank was sole lead on the deal.

Upfront fees were 25 basis points for the term loan and 50 basis points for the revolver, according to the syndicate.

Proceeds will be used to refinance the Illinois-based movie chain's debt, the syndicate source said.

When asked about the deal, one fund manager replied that she "wasn't impressed." She said she was concerned about payment of a special dividend to equity holders from the new deal and that "there wasn't a lot of free cash flow to pay down debt," she explained.

Meanwhile, R.H. Donnelley revealed on a conference call Monday that the company anticipates obtaining a $1.5 billion credit facility and issuing $800 to $900 million in high yield bonds in order to fund the acquisition of Sprint Corp.'s directory publishing business for $2.23 billion in cash and refinance debt. The approximately $2.4 billion in debt financing will be led by Bear Stearns, Deutsche Bank and Salomon Smith Barney (See story on page one of this issue).

As was seen in Monday's two new deals, investor skepticism seemed to reign supreme in regard to the prospect of this large new loan hitting the primary.

"There's a lot being done [in the sector] right now," the buy-side source said, citing QwestDex's upcoming facility as an example. "People like the sector. It's a simple business, easy to understand and an easy medium for advertisers so there's less cyclical behavior. But there's lots of senior leverage, which worries us. We'd like to see more high yield debt in the capital structures."

"I don't think it's going to be great," a trader said. "Look at AT&T Comcast. There was an OID on it so it came at 98 and it's breaking in the middle 90's [in the secondary]. For successful syndication it needs to be priced pretty high."

Realizing that the sector has been hot with acquisitions lately, R.H. Donnelley provided a comparison of the Sprint, QwestDex and Bell ActiMedia transactions in its 8-K filing, making Sprint appear to be the most favorable deal in the market.

The Sprint purchase price is $2.23 billion, QwestDex is $7.05 billion and Bell ActiMedia is C$3 billion, the filing said. Estimated EBITDA for 2002 is $260 million for Sprint, $950 million for QwestDex and C$345 million for Bell ActiMedia. Leverage for Sprint is anticipated at 5.9 times, 6.0 times for QwestDex and 6.1 times for Bell ActiMedia.

Neither the syndicate nor the company was able to specify timing for either the bond and bank deals. However, the acquisition is expected to close in the first quarter of 2003, subject to regulatory approval and closing conditions.

R.H. Donnelley is a Purchase, N.Y. marketer of yellow pages advertising.

In other news, the proposed leveraged buyout of Dole Foods Co. Inc. may be financed through a credit facility and an offering of high-yield bonds, a source familiar with the deal hinted to Prospect News.

Chairman and chief executive officer David H. Murdock has hired Deutsche Bank to advise on the LBO and has been given "a 'highly confident' letter with respect to the financing for the proposed transaction," a news release said. Deutsche declined to comment on the financing for the buyout, saying that "there has been no formal announcement and at this point [the acquisition] is just an offer."

Under the proposed acquisition, approximately valued at $2.5 billion, Murdock made a cash bid upwards of $1.2 billion, offering to purchase 76% of the outstanding shares of common stock at $29.50 per share, and agreed to assume all company debt and obligations. The offer will be withdrawn if an agreement is not executed by Nov. 6.

Murdock is the chairman of the board, chief executive officer and largest stockholder of Dole Food. All in all, the Murdock family own approximately 24% of the total amount of outstanding shares.

Dole Food is a Westlake Village, Calif. producer, marketer and distributor of fresh produce, fresh flowers and packaged foods.

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