The $2 billion debtor-in-possession facility for Kmart will likely include an institutional tranche, satisfying buyside demand for paper and deepening the prospective pool of capital, bankers said. Price talk on the DIP, led by J.P. Morgan and Fleet Securities, is in the LIBOR plus 31/ 2% range. Credit Suisse First Boston and General Electric Capital will act as collateral monitors, documentation agents and syndication agents on the credit with the two leads. The spokespersons and officials for the banks either did not return calls or declined all comment on Kmart.
Kmart expects to be able to access $1.15 billion of the facility upon court approval of an interim financing order, with the remainder subject to final court approval. The reasoning given by the company for the filing includes a rapid decline in liquidity resulting from below-plan sales and earnings performance in the fourth quarter, the evaporation of the surety bond market and erosion of supplier confidence. Additionally, recent capital market volatility and the continuing recession hindered the company. Intense competition from Wal-Mart is seen by many as a reason why it may be difficult for the company to re-emerge by 2003, the planned timeframe.