Proceeds from The Holmes Group's new $420 million credit will refinance existing bank debt, retire bonds and pay a dividend to sponsor Berkshire Partners. "Our existing financing arrangement expires in January 2005, so we had to do something fairly soon in order to solidify financing going forward and we saw the opportunity to redeem our subordinated notes," noted John Kelliher, Holmes' cfo. About $100 million of outstanding 97/8% subordinated notes will be retired with the new transaction. The company's board is contemplating the size of the dividend depending on how the offering is accepted. The ratings agencies have said the dividend will be $153 million, but Kelliher said that figure is subject to change.
Holmes currently has a $171 million revolver, $6.2 million "A" loan and $70.8 million "B" loan. Holmes used anywhere from $28-80 million of the revolver last year depending on seasonality, Kelliher noted. Pricing on the existing bank facility is based on a grid and the average interest rate last year was about 5.3%, he added. FleetBoston Financial led Holmes' existing facility, while Credit Suisse First Boston and GE Capital are leading the new facility. Kelliher said the bank switch was a decision of the company and the equity sponsors and he declined to comment if Fleet made a proposal for the refinancing.
Pro forma the transaction, total debt will increase from $204.8 million to $354 million and leverage will increase from 2.6 times to 4.3 times. The new deal is made up of a five-year, $75 million revolver; seven-year, $240 million first-lien term loan; and seven-year, $105 million second-lien term loan. The revolver and first-lien term loan are priced at LIBOR plus 31/4% and the second-lien term loan is at LIBOR plus 7%. The first-lien term loan has a 70% excess cash flow provision that will step down at a rate to be determined, while the second-lien term loan does not amortize and has a 50% excess cash flow provision that will apply after the first-lien has been repaid. Syndication launched last Wednesday. Holmes manufactures kitchen and home comfort products. Berkshire officials did not return calls.