Burger King loan may not hit leveraged market for years due to Diageo guarantee

By Sara Rosenberg

New York, Dec. 13 - Burger King Corp.'s deal is back - but it may take up to three years to hit the leveraged loan market.

Diageo said Friday it reached an agreement with Texas Pacific Group, Bain Capital Partners and Goldman Sachs Capital Partners on the sale of the Miami hamburger fast food chain.

Post closing, Burger King will have $750 million in senior loans with a term of five years, a $100 million revolver and $425 million of 9% subordinated debt with a term of 10½ years provided equally by Diageo and the buying group.

The term loans and the revolver are guaranteed by Diageo, an investment-grade company.

But the arrangement is structured to encourage Burger King to refinance these loans on a non-guaranteed basis. If refinancing does not occur in the first three years, Diageo will receive an annual guarantee fee of 5% of the outstanding principal amounts of the loans. Diageo will make an incentive payment of $10 million if the loans are refinanced during the first 18 months following closing or a payment of $5 million if they are refinanced during the next 18 months.

Financing of the transaction was arranged by J.P. Morgan and Citigroup.

"The change in the financial terms, from the initial announcement in July, will reduce the company's debt burden and strengthen its capital structure. This will better position BKC as a healthy, independent company for the first time in more than thirty years," said John Dasburg, chairman, chief executive officer and president, Burger King, in a news release.

News of the Burger King sale first emerged this past summer, at which time investors were watching the primary in anticipation of the new credit facility, which was originally expected to be $800 million to $900 million in size. It was then announced last month that the buying group would not be able to complete the transaction "due to the highly competitive trading environment in which Burger King and other quick service restaurant businesses are currently operating and the deterioration in the capital markets," a news release said.

Under the revised agreement, the purchase price is $1.5 billion (down from the original purchase price of $2.26 billion), to be settled in part by cash, by $86 million in assumed debt and the balance by means of subordinated debt with a principal amount of $212.5 million. The transaction closed on Friday when payment was received.

In follow-up news, Lyondell-Citgo Refining LP completed the refinancing of its credit facilities, through a new $450 million term loan and a $70 million working capital revolver, both maturing in June 2004. The facilities are secured by basically all assets of Lyondell-Citgo Refining.

Credit Suisse First Boston was the lead bank on the deal.

Furthermore, loans to Lyondell-Citgo Refining by Lyondell Chemical Co. and Citgo Petroleum Corp. have been extended and will now mature in December 2004, according to a news release.

AES Corp. closed on its $1.6 billion senior secured credit facility and its exchange offer relating to $500 million of its outstanding debt securities, the company announced late Thursday.

This refinancing substantially eliminates all scheduled parent maturities until November 2004, improving liquidity, reducing debt service burden and enhancing financial flexibility.

"This refinancing is a major accomplishment as it provides a solid foundation for AES's future. With the financial stability afforded by this transaction, we can now focus entirely on implementing our business plan, including our emphasis on operational excellence and the execution of our asset sales and cost reduction programs," said Paul T. Hanrahan, president and chief executive officer, in a news release.

The credit facility consists of a $350 million revolver, three tranches of term loans totaling approximately $1.2 billion and a reimbursement agreement associated with a £52.5 million letter of credit, all due July 15, 2005 and have an interest rate of Libor plus 650 basis points.

Security for the loan is a first priority lien on all of the capital stock of domestic subsidiaries owned directly by AES and 65% of the capital stock of certain foreign subsidiaries owned directly by AES and inter-company receivables and notes receivable and inter-company tax sharing agreements.

The Virginia power company accepted all bonds tendered in its exchange offer for its outstanding$300 million 8.75% senior notes due 2002 and $200 million 7.375% remarketable or redeemable securities due 2013, which are putable in 2003. Approximately $240.013 million of the 2002 notes and $173.889 million of the ROARs were tendered.

The new senior secured notes, totaling about $258 million, bear a coupon of 10% and will mature on July 15, 2005 unless certain conditions are met to extend them to Dec. 12, 2005.

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