D&K Healthcare Resources has amended its $600 million asset-based credit facility to extend maturities two years to 2009, increase borrowing capacity to $735 million without the requirement of lender consent and switch covenants. "We basically have pre-approval from the bank group if we see a need to expand it to $735 million. But we do have to go find additional banks or get the original bank group to step up their hold levels," said Tom Hilton, D&K's senior v.p. and cfo.
D&K's amended facility includes a $35 million second-lien/last-out tranche that creates availability under the base facility. A $100 million accordion feature was also added to the deal. Bank of America leads the credit, continuing a relationship that initially began with Fleet Bank. GE Capital and J.P. Morgan are co-documentation agents.
Hilton said the decision to amend the facility was part of the company's regular discussions with its bank group. "We were in pretty constant discussions with our banking group and with our agent bank, B of A. In some of the discussions in the fall they made us aware of the direction that the ABL marketplace was moving and talked about some of the changes that they were seeing in terms of the possibilities that were being offered and what made sense for us," he explained. Ed Bartkowski is D&K's relationship banker at B of A.
Pricing on the new facility changed from a grid tied to the interest coverage ratio to one tied to availability over the line. Availability is the difference between your borrowing base and what you have outstanding under the line, Hilton explained. "Switching the pricing grid and the covenants really turns this into an agreement that we have more control over. We don't have control over rising interest rates, but we do have control over availability and borrowing levels," he stated. D&K also eliminated financial performance covenants provided it maintains a minimum availability of $50 million under the facility.