Silgan Holdings facility to include revolver, term loans; debt costs expected in low 5% range

By Sara Rosenberg

New York, April 14 - Silgan Holdings Inc.'s new credit facility is expected to consist of a revolver, term loan A and term loan B, according to a 425 filed with the Securities and Exchange Commission on Thursday.

As was previously reported, the company has received a commitment for $4 billion of debt financing, comprised of the new credit facility and bonds.

The company expects its cost of borrowing to be in the low-to-mid 5% area.

In terms of how much of the new debt will be fixed rate and how much will be floating rate, the filing said that the numbers are still being figured out, but it will be balanced somewhere around 50/50 or 60/40, depending on how the debt markets respond.

An 8-K also filed on Thursday said that Bank of America Merrill Lynch is the lead bank on the financing.

The transaction is structured to maintain a Ba2/BB credit profile.

Proceeds from the new debt will be used to help fund the acquisition of Graham Packaging Co. Inc.

Pro forma for the transaction, total debt will be around $4.7 billion and leverage will be 3.9 times.

Following the acquisition, Silgan expects to generate on a pro forma basis about $500 million of free cash flow, or roughly $5 per share, in the first full year of operations.

Given the free cash flow generation of the combined business, the company expects leverage to be comfortably back in the middle of the 2½ times to 3½ times context in two to three years.

As part of the acquisition, Silgan will be assuming about $500 million of Graham's existing 8¼% bonds.

Under the purchase agreement, Graham shareholders will receive 0.402 shares of Silgan common stock and $4.75 in cash per share, representing a total enterprise value, including net debt, of $4.1 billion.

Included in the transaction costs is a cash payment at closing of $245 million due to contractual change-in-control provisions in Graham's income tax receivable agreements with Blackstone Capital Partners III LP and the Graham family.

The combined company has annual sales of over $6.2 billion and pro forma 2010 EBITDA of $1.1 billion, including $50 million of synergies.

Closing is expected in the third quarter, subject to the approval of the transaction by Silgan's shareholders and Graham's shareholders, receipt of applicable regulatory approvals and the satisfaction of customary conditions.

Each of Silgan's co-chairmen of the board, R. Philip Silver and D. Greg Horrigan, who collectively beneficially own 29% of Silgan's common stock, have entered into an agreement to vote in favor of the transaction. And, Blackstone Capital Partners III LP and certain of its affiliates and the Graham family, who collectively own 65% of Graham's common shares on a fully diluted basis, have also entered into agreements to vote in favor of the transaction.

Bank of America Merrill Lynch acted as the financial advisor to Silgan. J.P. Morgan Securities LLC acted as financial advisor to the special committee of the board of directors of Graham Packaging.

Silgan is a Stamford, Conn.-based manufacturer of consumer goods packaging products. Graham is a York, Pa.-based supplier of plastic containers.

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