Michael Foods has increased the size of its senior secured credit to repay its senior unsecured term loan. It is also hoping to use its improved credit profile and better market conditions to reduce its interest costs. Pricing on the new deal has not been set, but the company is hoping to knock as much as 25 basis points of its current rate, said Mark Witmer, reasurer.
The food distributor and processor has increased the size of its senior secured term loan maturing in 2010 to $595 million from $540 million. The credit facility also includes a $100 million revolver, which will remain unchanged. Price talk is LIBOR plus 2%. The previous facility is priced at LIBOR plus 2 1/4%. The company will use proceeds from the issue along with excess cash on its balance sheet to repay its $135 million unsecured term loan. It chose to do a bank deal rather than issue bonds because of onerous pre-payment penalties on bonds, said Witmer. Banc of America Securities is the lead arranger. The bank was also lead arranger on the previous facility. Witmer declined to comment on whether the company took bids or approached Banc of America directly.
Standard & Poor's rates the new credit facility B+. It assigned a recovery rating of 2 to the credit facility, which indicates an expected 80-100% recovery of principal if it defaults. It has a B+ corporate credit rating on the company and its parent M-Foods Holding. The rating reflects its high debt leverage and its high number of market competitors. Moody's Investors Service has a B1 corporate family rating on the company.