The financing also includes $195 million of senior subordinated notes and $245 million in equity. The bonds priced at 9 3/4%. Duane Reades 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 & Poors (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 companys 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.