Caremark Tries Cheap Pricing Redux
Caremark Rx is attempting to cut pricing on its $225 million "B" term loan by 3/4% after improving the credit profile of the company in the last year. The pharmacy-benefit management (PBM) company is back in the market with lead banker Bank of America. "We refinanced the bank facility last year leaving a "B" loan outstanding. But since then, the company has improved the credit, been upgraded to BB+ by Standard & Poor's, and so is looking to improve interest payments," explained Howard McClure, executive v.p. and cfo of Caremark.
Current pricing on the "B" loan is LIBOR plus 3%, but the asking price is now a trim LIBOR plus 2 1/4%. The "B" has traded at slightly over par according to bankers, he noted. Furthermore, competitor Express Scripts scored a LIBOR plus 2% deal last month, with the company and banks attempting a LIBOR plus 1 3/4% at one point (LMW, 3/18).
Caremark has been able to reduce net debt by over $194 million in the last year, McClure said. According to S&P the total debt to EBITDA ratio is 2.7 times. "Cash flow has been strong, after the company divested itself of the physician practice management business. Concurrently the PBM business has been significantly increased," he said. The PBM business does not face any of the Medicare or reimbursement issues, McClure remarked.
B of A leads the existing deal, which also includes a $300 million revolver that has a grid-based pricing. The maturity date for the "B" is 2006 and 2005 for the pro rata. The bank meeting was last week, but McClure declined comment on the progress of the syndication. S&P notes Caremark has one of the largest and most efficient mail-order pharmacy services in the country. The company may conduct acquisitions, but these are expected to be limited in size.