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Brand Services Delayed After Meeting Is Cancelled

J.P. Morgan and Credit Suisse First Boston have put on hold the retail launch of a $200 million credit backing J.P. Morgan Partners' $539 million acquisition of Brand Services from DLJ Merchant Banking. As first reported last week on LMW's Web site, a bank meeting was scheduled for last Monday, but the launch was scrubbed the previous Friday and a new meeting date has not been set. One source close to the situation said the reason for the delay is "not deal related, and the meeting will be rescheduled soon, within the next two weeks." A spokeswoman for J.P. Morgan Partners declined to comment, as did a J.P. Morgan spokesman.

One reason floated by market players is that the proximity of the meeting to Sept. 11 meant an unwillingness to travel. Some bankers, however, suspect the deal is on hold due to concerns that Standard & Poor's would have assigned lower-than-anticipated ratings to the proposed bank deal and bond offering. "[Brand Services] made their agency presentation on Aug. 21, but there is still no word from S&P one week after Moody's Investors Service," said a banker. "Their existing ratings are B2/B-, and Moody's upgraded them one notch. That means if S&P does the same, they get a B flat on the bank [and] CCC+ on the subs, making execution impossible," he explained.

To adjust the ratings would require more equity from the sponsor to reduce leverage, which is "always a sore spot with sponsor firms," the banker said. J.P. Morgan Partners is already injecting $220 million of new equity into the deal. Another option is a re-negotiation of the purchase price. Currently, debt-to-EBITDA is 4.7 times plus $20 million of issued letters of credit, bringing leverage close to five times, he noted. Steven Nocar, the S&P analyst responsible for Brand, did not return calls. A CSFB spokesman did not provide a comment by press time.

The bank portion comprises a $150 million "B" term loan and a $50 million revolver that will be undrawn at closing. Pricing on the seven-year "B" piece was to be LIBOR plus 31/ 4%, while that on the six-year revolver was LIBOR plus 23/ 4% with a 50 basis point commitment fee. The financing package also includes a $165 million senior subordinated note offering, a $20 million letter of credit facility and $4.2 million of capital leases and notes.

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