Medco to refinance entire credit facility in connection with Accredo purchase

By Sara Rosenberg

New York, Feb. 24 - Medco Health Solutions Inc. plans on refinancing/restructuring its entire credit facility in connection with its acquisition of Accredo Health Inc., according to company officials.

"What we're going to do is go out to the banks and do some refinancing. Based on the rates that are out available right now, we would look to restructure the entire deal," company officials said in a conference call Wednesday morning.

"We're looking for completely restructuring our bank deal right now so there'll be different components that we'll be looking at as we go forward and deal with our banking relationships.

"Right now we're really looking for bank borrowings," company officials said when asked whether they would consider approaching the unsecured markets. "It may change in the future but that's really where we're looking right now."

Aside from a new credit facility, the company is also looking to use cash on hand, which was $1.1 billion at year-end 2004, and borrowings under its accounts receivable financing facility, under which up to $500 million can be drawn, to finance the acquisition. The accounts receivable facility will need to be amended to allow for the acquisition, a company spokesperson told Prospect News on Thursday.

"We're going to use a significant piece of cash on hand, which of course is inexpensive for us, and then we'll utilize our asset securitization facility," officials said in the conference call.

"The balance we'll need to go to the banks. We're in the midst of starting to initiate that process and we'll be able to give a little bit more color as we go further into the negotiations with our banking relationship," officials added in the call.

Under the terms of the agreement, each Accredo share outstanding will be exchanged for $22.00 in cash and 0.49107 shares of Medco common stock, for a total transaction value of about $2.2 billion.

After closing, Medco will continue to be capitalized by an anticipated debt to EBITDA ratio of 1.5x and a debt to total capitalization ratio of less than 25%. And, Medco anticipates using its significant free cash flow to repay its debt.

The acquisition, which is expected to close mid-year, is subject to the approval of Accredo stockholders and other customary closing conditions.

Lehman Brothers Inc. served as Medco's financial adviser.

Medco is a Franklin Lakes, N.J.-based pharmacy benefit manager. Accredo is a Memphis, Tenn.-based provider of specialized pharmacy and related services.

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