Mac-Gray to borrow from revolver to redeem $50 million of 7 5/8% notes

By Toni Weeks

San Diego, Sept. 22 - Mac-Gray Corp. said it plans to use about $52 million of availability from its revolving credit facility to redeem $50 million of its $150 million of 7 5/8% senior notes due Aug. 15, 2015 at a redemption price of 102.542.

The borrowings will carry an interest rate of Libor plus a spread of 200 to 250 basis points. If Libor does not change significantly, Mac-Gray expects the cash payback period to be about six to eight months.

According to an 8-K filing with the Securities and Exchange Commission, Mac-Gray entered into a fourth amendment to the senior secured credit agreement on Sept. 21 with Bank of America, NA as administrative agent and collateral agent. The amendment allows the company to repurchase or redeem up to $50 million of its outstanding 7 5/8% senior notes due 2015 at an aggregate price not to exceed $53 million, as long as no default or event of default exists under the credit agreement and the consolidated senior secured leverage ratio does not exceed 2.25:1 on a pro forma basis.

Chief financial officer Michael J. Shea said that converting a portion of the company's fixed-rate senior notes to the lower variable rate currently available through the revolver will lower the company's overall interest expense.

"In light of the Federal Reserve's announcement that it plans to keep interest rates near zero until at least mid-2013, we believe there is little likelihood that Libor will change dramatically over that time," he said in the filing. "Given this environment and the approximately $80 million of current availability under our revolver, we believe the redemption is a prudent financial decision that is in the best interest of our shareholders."

Mac-Gray said it will realize a non-cash charge in the second half of the year of roughly $600,000 of unamortized costs associated with the cost of the original 2005 notes offering and a cash expense of about $1.3 million representing the cash redemption premium.

Mac-Gray contracts coin- and debit-card-operated laundry facilities in multi-unit housing facilities. The company is based in Waltham, Mass.

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