Warner Chilcott Corp.'s $1.4 billion "B" loan has brought in more than $2 billion in investor commitments despite lugging total leverage to over seven times. "It's definitely one of the highest ones I've seen in a while," Arthur Wong, an analyst with Standard & Poor's, said of the deal's leverage. But the pharmaceutical company's strong business profile and steady product revenues are convincing buysiders. "It's a good company. There is no question about that," one loan investor added. "It's more of a structuring and leverage issue."
Deutsche Bank and Credit Suisse First Boston are leading the $1.79 billion credit, which backs the acquisition of the company by Bain Capital, DLJ Merchant Banking, J.P. Morgan Partners and Thomas H. Lee Partners. Last week the "B" loan was increased by $150 million to $1.4 billion, while the bonds were decreased by the same amount. The changes were due to a higher than expected spread on the bonds, which came in at 8 3/4%, a banker noted. "The company has pretty high free cash flow, they're going to take as much bank debt as they can," he added.
One loan investor said senior leverage increased from 4.3 to 4.7 times with the larger term loan. The credit also includes a $150 million revolver and $240 million delayed-draw term loan. Price talk is LIBOR plus 2 3/4% on the term loans and LIBOR plus 2 1/2% on the revolver. There is a 50 basis points commitment fee on the revolver and 137.5 bps commitment fee on the delayed-draw term loan.
The company has the rights to acquire psoriasis treatment Dovonex from Bristol-Meyers Squibb Co. in early 2006. Dovonex is expected to become Warner Chilcott's top seller after it is purchased, Wong noted. The Dovonex acquisition will bring leverage down to 6.5 times and the banker said investors are adjusting the leverage for the acquisition and looking at is as a mid-six type leverage right now. The $240 million delayed-draw term loan is reserved for the Dovonex acquisition. But the company may not have to draw it. "Hopefully they'll be able to fund it with cash flow they'll generate this upcoming year," Wong said. Warner Chilcott currently markets Dovonex for Bristol so it should be a seamless transition, he added.
Warner Chilcott manufactures women's health and dermatology products. "Management is very seasoned and the products are pretty seasoned as well," Wong said. "Yes, it's a lowly rated credit. But it's not like one of your emerging pharmaceutical companies that don't have good products. I think people give a lot of credibility to that." The company has steady product revenue streams, one buysider said. "It's hard to paint a picture where that can be interrupted."
Spokespeople for Bain and T.H. Lee declined comment. Spokeswomen for DLJ and J.P. Morgan did not return calls. Officials from the lead banks declined comment. Warner Chilcott officials did not return calls by press time.
