Safety-Kleen Systems paid off $177 million of subordinated debt and $10 million of preferred shares with a new credit facility. Dennis McGill, cfo, said the replacement of subordinated debt and preferreds with a bank deal cleans up the company's capital structure and lowers the cost of borrowing.
"It is a very positive transaction. Subordinated debt has a higher cost. It is cleaner to have one set of debt," said McGill. He said the company's bonds had 12% payment-in-kind. "It did not match our risk profile. The interest rate was too high."
Safety-Kleen entered into a $395 million credit facility, consisting of a $230 million term loan "B," a $100 million revolver and a $65 million letter of credit facility in June. An additional $100 million can be borrowed under the revolver or the letter of credit facility. McGill said the company sought this expansion feature to fund potential acquisitions. He would not comment on any specific targets, other than to say Safety-Kleen is actively seeking to buy companies.
The new financing replaces a $150 million term loan "B," a $100 million revolver and a $100 million synthetic letter of credit. Pricing was not disclosed, but McGill said the financing is 450 basis points cheaper than the previous deal.
McGill said he was not satisfied with the pricing, however. "Everyone wants cheaper financing," he said. But he added that it was the best deal the company could get for its rating. Moody's Investors Service rates Safety-Kleen HoldCo., the holding company of Safety-Kleen Systems, B1. The company emerged from bankruptcy in December 2003.
JPMorgan and Credit Suisse lead the deal. Both banks have relationships with the company; Credit Suisse was a lead on Safety-Kleen's previous line of credit, while JPMorgan was a holder of its securities. Deutsche Bank was a lead on Safety-Kleen's prior facility, but the company chose to use JPMorgan instead for the new financing. He declined to comment on why the company dropped Deutsche Bank. "We thought JPMorgan and Credit Suisse would do the best job for us. We like JPMorgan because they are a full service bank and were a major holder of our securities."