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Duane Reade Trades In The Rafters

27 Jul 2004

Duane Reade’s $155 million term loan allocated last Monday and has since traded in the 101 1/2–102 context, dealers said. Bank of America and Credit Suisse First Boston lead the loan, which backs Oak Hill Capital Partners’ $700 million acquisition of the drugstore chain.

Duane Reade’s $155 million term loan allocated last Monday and has since traded in the 101 1/2–102 context, dealers said. Bank of America and Credit Suisse First Boston lead the loan, which backs Oak Hill Capital Partners’ $700 million acquisition of the drugstore chain. The six-year term loan is priced at LIBOR plus 3 3/4%.
 
The financing also includes $195 million of senior subordinated notes and $245 million in equity. The bonds priced at 9 3/4%. Duane Reade’s four-year, $250 million revolver is not trading. Banks are going to hold it because it is well secured and they are comfortable with the risk, a trader said. Approximately $150 million of the revolver has been drawn.
 
Total debt-to-EBITDA is 8.7 times following the acquisition. The company is highly leveraged and will slowly grow out of that as their profitability improves, but it will be a slow process, commented Diane Shand, an analyst with Standard & Poor’s (LMW, 7/9). Duane Reade has been affected by the weak New York economy and increased competition since the fourth quarter of 2001. A Duane Reade spokeswoman and an Oak Hill official did not return calls.
 
The revolver is secured by a first-lien on inventory, accounts receivable and scripts with a recovery rating of 1, according to S&P. The real state upon which the loan creditors have first-lien provides significant value even in a distressed scenario, the rating agency said. The company’s term loan is secured by a first-lien on property, equipment and intangible assets and has been given a recovery rating of 2 by S&P.
 
27 Jul 2004