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Two-Part Smurfit Loan Launches

15 Jun 2006

The two-part financing for Smurfit-Stone Container Corp. hit the market last week.

The two-part financing for Smurfit-Stone Container Corp. hit the market last week. The first phase of financing backs the approximately $1.04 billion leveraged buyout of the company's consumer packaging division by Bluegrass Container Co., as the deal is being called, an affiliate of Texas Pacific Group. The second piece backs a follow-on acquisition of another top-10 company in the consumer packaging space. The funds for the second phase are available until Oct. 31, but it is anticipated it will be used well before that deadline. TPG is chipping in $295 million of equity, according to ratings agencies. A TPG spokesman declined comment.

The initial financing consists of a $100 million revolver; a seven-year, $585 million first-lien term loan and a seven-and-a-half-year $310 million second-lien term loan. Pricing is LIBOR plus 2% on the first lien and revolver, and LIBOR plus 4 1/2% on the second lien. There is no call protection, but there is a 50 basis points undrawn fee for the period between step one and step two on all three tranches. JPMorgan and Lehman Brothers lead the deal. Officials at the banks either did not return calls or declined to comment.

The second set of financing is for an additional $50 million on the revolver, for $150 million total; another $175 million on the first lien for a total of $760 million; and another $95 million on the second lien for a total of $405 million.

Moody's Investors Service assigned a Ba3 rating to the first lien and revolver, and a B3 rating to the second lien. Standard & Poor's assigned a BB- to the revolver and first lien and a B- to the second lien. S&P says Bluegrass will have total debt, including capitalized operating leases, of about $1.2 billion and total debt to pro forma EBITDA for the 12 months ending March 31 of 6.6 times. A Smurfit spokesman was out of the office and could not be reached. Jeff Beyersdorfer, treasurer, did not return a call.

15 Jun 2006