Aramark will issue bonds, has $2.3 billion term loan commitments for Avendra, AmeriPride purchases

By Devika Patel and Sara Rosenberg

Knoxville, Tenn., Oct. 16 – Aramark plans to use both term loans and long-term unsecured bonds to pay for its planned acquisitions of Avendra, LLC and AmeriPride Services Inc.

The acquisition of Avendra is expected to cost $1.35 billion and Aramark will acquire AmeriPride for $1 billion.

The company said in an 8-K filed with the Securities and Exchange Commission on Monday that subsidiary Aramark Services, Inc. has received a commitment for up to $1.35 billion in term loans for its acquisition of Avendra and a commitment for up to $975 million in term loans for its purchase of AmeriPride.

JPMorgan Chase Bank is the lead bank on the loans for the Avendra transaction, and Goldman Sachs Lending Partners LLC and Morgan Stanley Senior Funding Inc. are the leads on the loans for the AmeriPride transaction.

“[We will pay for the acquisitions through] a combination of term loans, which would be similar, I think, in both price and structure to our existing credit facility and we certainly will use some long-term unsecured bonds as well,” executive vice president and chief financial officer Steve Bramlage, Jr. said on the company’s conference call announcing the acquisition on Monday.

“I think the cost of the financing, there’s no reason in the markets today for you to think it would be significantly different than the last set of financings we’ve done here in the last six to nine months.

“It should be very, very similar,” he said.

The company doesn’t expect the long-term bonds will come due anytime soon.

“We will be somewhat balanced and very sensitive to making sure that we get the longest possible period of time before maturities come back to life,” Bramlage said.

The company’s leverage ratio is expected to increase to mid 4x at the end of closing, but “aggressive debt repayment” is also expected and management targets a leverage ratio of 3x to 3.5x by the end of fiscal 2020.

“Our leverage ratio will increase to the mid 4x after the transaction’s close during fiscal 2018 but we expect that strong, consistent cash flows and aggressive debt repayment should allow us to de-lever to below 4x in fiscal 2019 and be back within our target leverage ratio of 3x to 3.5x by the end of fiscal 2020,” Bramlage said.

The company has experience paying off debt, since it decreased its leverage ratio since it completed its initial public offering.

“We’ve de-levered from over 5x at the time of the IPO to 3.8x at the end of the third quarter,” chairman, president and chief executive officer Eric Foss said on the call.

The company’s management is also keeping an eye on credit ratings.

“We understand the need to aggressively de-lever the balance sheet post-closing and continue to believe that the appropriate long-term target credit rating for the company in order to achieve an optimal cost of capital and strategic flexibility is a BB+, Ba1 rating,” Bramlage said.

“Our capital allocation priorities will clearly be focused on paying off debt and maintaining the target 20 to 25% dividend payout ratio.

“We have little in the way of maturities in the next five years, thanks to our recent refinancing activities, and we’ll work hard to ensure we preserve our significant level of financial flexibility,” Bramlage said.

The transactions are expected to close by the end of calendar 2017.

Avendra, a Rockville, Md.-based hospitality procurement services provider, is being bought for $1.35 billion, or a net purchase price of $1.05 billion after adjusting for the value of the anticipated tax benefits.

AmeriPride, a Minnetonka, Minn.-based uniform and linen rental and supply company, is being acquired for $1 billion, or a net purchase price of $850 million after adjusting for the value of the anticipated tax benefits.

Based in Philadelphia, Aramark provides food, hospitality and facility management services as well as uniform and work apparel.

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