Chem Rx to launch $162 million credit facility on Tuesday

By Sara Rosenberg

New York, Oct. 15 - Chem Rx Corp. is scheduled to hold a bank meeting on Tuesday to launch its proposed $162 million senior secured credit facility, according to a market source.

CIBC is the lead bank on the deal.

The facility consists of a $25 million five-year revolver talked at Libor plus 400 basis points, an $80 million six-year first-lien term loan talked at Libor plus 400 bps, a $20 million six-year delayed-draw term loan talked at Libor plus 400 bps and a $37 million seven-year second-lien term loan talked at Libor plus 800 bps, the source said.

Second-lien call protection is 103 in year one, 102 in year two and 101 in year three.

Whether the bank deal will carry an original issue discount is still to be determined, the source added.

Recently, the company amended its credit facility commitment, reducing the total size from $177 million, increasing pricing and revising second-lien call premiums.

Under the original commitment, the facility consisted of a $25 million five-year revolver (B1/B+) at Libor plus 300 bps, a $90 million six-year first-lien term loan (B1/B+) at Libor plus 300 bps, a $20 million six-year delayed-draw term loan at Libor plus 300 bps and a $42 million seven-year second-lien term loan (Caa1/CCC+) at Libor plus 650 bps.

And, second-lien call protection under the original commitment was 102 in year one and 101 in year two.

The first-lien debt contains a covenant regarding a minimum fixed-charge coverage ratio, a maximum total leverage ratio and limitations on consolidated capital expenditures, and the second-lien is limited to a covenant regarding a maximum total leverage ratio, which shall be less stringent than that applicable to the first lien.

Security is substantially all of the assets of Paramount, Chem Rx and its subsidiaries.

Repayments on the loans must be made from 50% of the net proceeds from the issuance of additional equity interests by Paramount, 75% of consolidated excess cash flow (reduced to 50% if the total leverage ratio is less than or equal to 3.75:1.00), 100% of the net proceeds of certain debt and 100% of the net proceeds of any asset sales and insurance and condemnation proceeds.

Amortization on the first-lien term loan is equal quarterly installments of an aggregate of 2.5% per year for the years 2008, 2009 and 2010, 5% per year for the years 2011 and 2012, and 1.25% for each of the first three fiscal quarters of 2013, with the balance payable in a balloon at maturity.

Proceeds will be used to help fund the acquisition of the company by Paramount Acquisition Corp.

The revision to the credit facility was a result of the change to the acquisition agreement, which reduced the amount of cash consideration payable to the sellers by anywhere from $5 million to $15 million, depending on the number of holders of Paramount's common stock who vote against the transaction and elect to convert their shares into cash.

In lieu of such cash consideration, Paramount will issue to the sellers 10% unsecured subordinated promissory PIK notes.

Proceeds from the delayed-draw term loan can be used to finance the contingent "initial earnout" payments that may become payable to the sellers in 2008 as well as the first annual milestone earnout, if the making of such payment through the issuance of shares would cause the sellers to own more than 20% of Paramount's outstanding common stock and Paramount elects to pay out such shares in excess of 20% in cash.

Chem Rx is a Long Beach, N.Y.-based long-term care pharmacy. Paramount Acquisition is a New York-based special purpose acquisition corporation.

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