Fresenius Medical Care is eliminating its "D" loan and moving to an all pro rata structure that takes the spread on the credit down to LIBOR plus 7/8%. The new credit comprises a $750 million revolver and $450 million "A" loan. Both have a tenor of five years. "I think the reason the banks are willing to do this is that there is a strong expectation that we are going to be investment grade very soon and this is the lead in transaction to that," explained Mark Fawcett, Fresenius' treasurer
A number of companies are predicting a rise from leveraged to investment grade status. FMC Corp. recently amended its $600 million credit facility to remove its institutional tranche and put in much improved terms to reflect its expectation to become a rising star (LMW, 11/15).
Credit Suisse First Boston, Bank of America and Deutsche Bank are leading the Fresenius refinancing. While the pro rata is geared toward banks, Fawcett said there may be two institutions that will stay. "There may be a couple who participate, but this is not really the target market," he noted. "We've now moved well out of the pricing they would find attractive." The company's previous credit comprised a $575 million revolver, a $575 million "A" loan and a $250 million "D" loan. The "D" loan flexed down to LIBOR plus 1 1/2% during syndication in April, marking a new low at that time for institutional loans (5/3). The pro rata was priced at LIBOR plus 1 3/4%.
In the past two years the company has had improvements in its working capital performance and cash flow from operations and free cash flow. "The banks and institutions that have been with the company for some time, recognize the capability of this company," noted Heinz Schmidt, v.p. of investor relations. "It underscores that the type of business that we're in is a very predictable and solid cash-flow generating business." Fresenius provides products and services for individuals undergoing dialysis because of chronic kidney failure."
