Lehman Brothers will be shopping Rent-A-Center's $600 million refinancing deal this week after it secured the role as joint-lead arranger with incumbent lead J.P. Morgan. A banker said Lehman is on the left running the deal, while J.P. Morgan is on the right. Lehman got the top spot because of its knowledge of the rent-to-own store chain on the equity side, said Robert Davis, v.p. of finance, cfo and treasurer. "They understand the company from that perspective," he said, adding that Lehman got a package deal to lead all of the company's debt and equity recapitalization plans, which include the credit facility, tender offers for shares and a notes offering. The banker added that Lehman's pitch for a Dutch Auction secured the package deal for the firm. The company intends to buy up to 2.2 million shares pursuant to a modified Dutch Auction and it is also in an agreement to buy additional shares from Apollo Investment Fund IV and Apollo Overseas Partners IV.
Davis also said Lehman has issued research reports on the company, demonstrating its knowledge of Rent-A-Center's business. "We entertained proposals from a number of firms," he added. The banker said the company did accept proposals from its existing bank group including J.P. Morgan. A J.P. Morgan spokesman and a Lehman official declined comment.
The credit includes a six-year, $400 million "B" loan, a five-year, $120 million revolver and an $80 million synthetic term loan. Davis declined to discuss pricing details, but the banker said the "B" piece's price talk ranges from LIBOR plus 21/2-23/4%, while the revolver and synthetic loan carry a spread of LIBOR plus 21/4%. "Our existing revolver expires next year and our amortization begins to ramp up next year," Davis said, explaining why the Plano, Texas-based company decided to refinance now. He added that the current credit's pricing is supposed to be in the LIBOR plus 21/2% range, but the company is actually paying a higher rate because of interest rate swaps currently fixed from 1998.
Bank of America and Comerica Bank are involved in the present credit and Davis said the company expects that its existing lenders will roll into the new deal. The banker said the revolver has been filled out already by the two leads and other agents Bear Stearns, Morgan Stanley, Wachovia Securities and UBS Warburg. The "B" piece already had some bids last week as well, he added. The Ba2-rated credit will allow Rent-A-Center to repurchase an additional $200 million of its common stock. An intended $300 million, 71/2% notes offering is also part of the recapitalization efforts. Rent-A-Center's present leverage is at 1.2 times and expected to rise to 1.7 times after the transactions are completed, Davis said (see story, page 7). The company, which offers durable goods to customers under rental purchase agreements, reported revenues of $566 million for the quarter ending last March.