Pathmark Stores has entered into an amended and restated five-year, $250 million credit facility from Bank of America's Fleet Retail Group that significantly lowers interest costs. The secured credit is priced at LIBOR plus 2%, compared to the previous $175 million revolver at LIBOR plus 3 1/2% and $425 million term loan at LIBOR plus 4%. "The marketplace has changed dramatically in the last four years," noted John Marques, Pathmark's assistant v.p. in treasury.
"This was a very competitive deal," Marques said. "We had gotten proposals from other groups, but this certainly was the best deal for us." He declined to name the other banks that pitched but noted that J.P. Morgan was the previous lead arranger. In addition to offering a competitive deal, Fleet Retail Group was a previous lender. GE Capital Corp. and GMAC Commercial Finance are co-documentation agents on the new credit and The CIT Group/Business Credit is syndication agent. Wells Fargo Foothill is also a lender.
The company's ratings were downgraded by Moody's Investors Service two weeks prior to completing the credit. But Marques said the downgrade did not have an impact on the credit and there is no trigger in the bank deal that would be affected by ratings downgrades or upgrades.
The new debt comprises a $180 million revolver and $70 million term loan. The revolver is quoted at 98 5/8-99 3/8 and the term loan is quoted at 100 1/2-101 1/4. The old credit was put in place in September 2000, but the company sold $350 million of senior subordinated notes in 2002 and 2003 and used the proceeds to pay down the term loan.
"Our existing revolver was due to expire in July of next year and as that date was coming it made sense for us to take out the old revolver and replace it with this," Marques noted. "It replaces a facility that was virtually going to go away in nine months." In addition, Pathmark's $45 million term loan was due two years later and the amortization was scheduled to pick up.
Prior to the refinancing, some analysts thought the company may have a covenant violation in its third quarter. "We were working on this deal long before we issued revised earnings guidance and there was some level of concern by analysts that maybe we're going to trip a covenant in the third quarter. That was really conjecture," Marques noted. "This is something that we needed to do because of the scheduled termination of the old revolver in July plus the desire to have a replacement in place prior to getting close to that date and then there was certainly the benefit of the lower interest rates."