The Kerr Group completed a $245 million credit that was increased after $40 million in lined-up mezzanine financing was dropped. "With the strength of the bank market, we upsized by $40 million...and took out the mezzanine completely," explained David Lorsch, a principal at Kerr's equity sponsor firm Fremont Partners. He did not provide details on the mezzanine debt. The credit refinanced the Lancaster, Pa.-based company's existing facility and backed its acquisition of the operating assets of the Setco and Tubed Products subsidiaries from McCormick & Co.
Wells Fargo Bank leads the secured credit, which includes a seven-year, $215 million "B" loan and a five-year, $30 million revolver. The revolver remains undrawn and is in place for general corporate purposes, Lorsch said. The "B" loan is priced at LIBOR plus 31/2% and the revolver holds a spread of 3% over LIBOR. "We had looked at flexing it down and decided [instead] to take out the mezzanine," Lorsch noted. Merrill Lynch Capital was syndication agent on the deal and Bank One also committed to the revolver, he added, noting that Bank One is new to the syndicate.
"The financing went well because the market saw the benefits of this [business]," Lorsch said, explaining that the merger of Kerr, Setco and Tubed Products effectively strengthens Kerr's position as a plastic packaging company and diversifies its portfolio. Kerr paid $132.5 million in cash for the McCormick businesses, including the assumption of trade liabilities. There is also an earn-out provision whereby Kerr will pay McCormick additional consideration based on meeting certain performance targets. Fremont contributed the additional equity to complete the acquisition. Kerr's total leverage is 3.3 times, Lorsch said.