Houghton Mifflin term loan B removed as bond sale gets upsized to $1 billion

By Sara Rosenberg

New York, Jan. 24 - Houghton Mifflin Inc.'s credit facility underwent some major changes on Friday following the company's high-yield bond offering. The credit facility, which was launched with both a term loan B and a revolver, was restructured as just a revolver following massive overfunding on the bond side.

At pricing Friday, the company upsized its junk bond offering to $1 billion from the originally announced size of $650 million.

That increase allowed it to drop the $250 million term B loan altogether and still come out with an extra $100 million of funding.

As a result the Houghton Mifflin loan is now simply made up of a $325 million revolver with an interest rate of Libor plus 325 basis points.

"This wouldn't be unprecedented," a market professional said of the major upsizing on the Houghton Mifflin bond deal. "Look at Georgia-Pacific. It started at $500 million and ended at $1.5 billion."

Georgia-Pacific Corp. Thursday priced $1.5 billion of senior notes, consisting of $800 million 9.375% notes due 2013 and $700 million 8.875% notes due 2010. The increase in the size of the offering was attributed to attractive terms and strong investor confidence. Proceeds from the offering are being used to repay about $500 million outstanding under the company's capital markets bridge facility, which matures Aug. 16, 2003 and approximately $1 billion of bank debt outstanding under the company's revolver.

Removal of Houghton Mifflin's term loan B follows talk Thursday in the market that pricing on the B loan might change - although at that stage there was no discussion of taking out the B piece. Word circulating was that the interest rate might go to Libor plus 300 basis points or Libor plus 325 basis points from Libor plus 375 basis points due to high demand.

The term loan had already undergone a resizing prior to the credit facility's launch. The tranche had been reduced to $250 million from $400 million once the company had made the decision to increase its bond offering to $650 million from $500 million.

The bond deal and the new credit facility are part of the financing for the Boston publishing company's leveraged buyout from Vivendi Universal by Thomas H. Lee Partners, Blackstone Group, Bain Capital and Apax Partners. The actual acquisition was completed on Dec. 31 for a price of $1.66 billion.

CIBC, Goldman and Deutsche are the lead banks on the credit facility.

In follow-up news, O'Charley's Inc.'s $300 million credit facility consisting of a $200 million revolver with an interest rate of Libor plus 250 basis points and a $100 million term loan B with an interest rate of Libor plus 400 basis points is expected to close and be funded on Friday, according to a syndicate source.

Originally, the credit facility was launched as a $285 million loan, consisting of a $150 million term loan B and a $135 million revolver. The interest rate on the term loan B began at Libor plus 350 basis points and was later flexed up to Libor plus 375 basis points and once more to Libor plus 400 basis points.

Furthermore, the amortization schedule on the term loan was changed to 10% due for the first five years and the remaining 50% due in the sixth year from an original schedule of 1% due in the first five years and the remaining balance due in the sixth year, a fund manager previously told Prospect News.

"That's kind of nice," the fund manager had said in regards to the new amortization schedule. "Quicker repayment."

Some hesitations involved with the deal included the pricing war in the restaurant industry and the fact that O'Charley's is a regional chain. "McDonald's and Burger King's pricing war is probably taking some sales away from O'Charley's," the fund manager had said. "Although it's not the same quality of food, it's cheaper. [Also], it's a regional restaurant chain. They're diversifying a little with the acquisition but they're not diversified across the country."

Proceeds are being used to help fund the acquisition of Ninety Nine Restaurant & Pub for approximately $160 million.

Wachovia Bank is the lead bank on the Nashville restaurant chain's deal.

Also Thursday, Casella Waste Systems, Inc. said it closed on its new credit facility. The Rutland, Vt. waste handling company's new $325 million senior secured credit facility consists of a $175 million five-year revolver with an interest rate of Libor plus 300 basis points and a $150 million term loan B with an interest rate of Libor plus 350 basis points. The deal was brought in conjunction with the company's renewed plans to sell $150 million of senior subordinated notes. Fleet Securities and Bank of America are the lead banks on the deal.

Proceeds from the notes combined with initial borrowing under the credit facility will be used to repay borrowings under the company's existing senior secured credit facility and for general corporate purposes.

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