Credit Suisse First Boston is pitching a rarely seen three-lien credit structure for PlayCore, a portfolio company of Chartwell Investments. As first reported on Loan Market Week's Web site, the $145 million deal comprises a $15 million revolver, $50 million first-lien term loan, $40 million second-lien term loan and $40 million third-lien term loan.
Syndication of the credit was set to launch Friday morning, as LMW went to press. The deal is refinancing the company's existing bank debt, which comprises a revolver and first- and second-lien term loans. "We're being advised by CSFB in New York and they've been helping us with the strategy in the market and how best to restructure our debt," said Joseph Neiner, PlayCore's cfo. "This is a structure that we agreed on based on their advice."
The first lien matures in five years, while the second is due in six years and the third in six-and-a-half years. The first lien will be offered to investors at LIBOR plus 5%, the second lien at LIBOR plus 9% and the third lien at 5% cash and 13% PIK notes. "Like any secured deal, it gets you closer to the assets, which if there were a default scenario improves your recoveries vis-à-vis those who are not secured," said David Miller, a managing director at CSFB, who is working on the credit.
PlayCore is a commercial and consumer playground manufacturer. Miller said CSFB thought that due to the leverage of the total entity it made sense to stratify into three returns. The company is closing at its seasonal peak and will be rapidly delevered by the end of the year. "This a company that even through the third lien will still be levered at five-and-a-half times through the end of the year," Miller said. "Comps in this universe have been selling in the mid-sevens."
The third lien is being put up at the holding company with a pledge at the assets from the operating company while the first and second liens are at the operating company, according to Miller. Neiner said the company is working with CSFB to make the loan an attractive offering for lenders. "It gives people a call on assets. This gives the financial institutions that would participate a preferential treatment against trade creditors, which is normally not the case," he added.
Miller said the structure is good for investors because of the security in the value of the company versus being an unsecured subordinate piece of paper with no security interest. He believes there will be tighter pricing because of the security interest and that should benefit the company. "We think it's attractive for us and should be very attractive in the market as well," Neiner said.
There will be different call schedules on the second and third liens. The second lien will have call protection of 103, 102, 101, par. The third lien call protection has not been finalized but is going to be higher, Miller said. There are a bunch of investors who are interested--typical mezzanine players and hedge fund players, he added.
A three-lien deal was previously done for Motor Coach Industries International. GE Capital led the first lien; Goldman Sachs led the second; and Franklin Templeton Investment's Mutual Shares Fund took the lead on the third lien (LMW, 3/22).
GE Capital led PlayCore's previous credit line and while CSFB was not a previous lender, Neiner said the company had contacts with and knowledge of the CSFB team for some time. "They made a very exciting recommendation to the company," he said. "They'll be an important partner for the company going forward once the deal is done." There will be private ratings given to investors. Officials from Chartwell, which bought the company in 2000, did not return calls.