Scotia Capital is funding a C$500 million credit for Sears Canada that was launched at a bank meeting last Wednesday in Toronto. The financing is broken into a five-year, C$300 million revolver and a seven-year, C$200 million term loan "B," which will be done in U.S. dollar equivalents. With the exchange rate it works out to a figure just shy of $170 million. The term loan has a delayed-draw feature and will be used to refinance some medium term notes due in March 2006. The revolver, which is for general corporate purposes, is priced at LIBOR plus 1 1/2% drawn and LIBOR plus 40 basis points undrawn. The term loan is priced at LIBOR plus 1 3/4%.
An official at the company said they had not worked with Scotia before, but went to all of the Canadian banks doing a process of elimination. "They gave us the best service and the best terms; a very responsive group," he said.
Moody's Investors Service rated the revolver and delayed-draw term loan Ba1. Based in Toronto, Sears Canada is 54% owned by Sears Roebuck and Co. It recently completed the sale of its financial services operations to JPMorgan for C$2.3 billion in cash net securitized receivables. Sears Canada has an after-tax gain of about C$650, according to a press release. The official said the decision to sell was based on the company's desire to grow the credit card. "We found that with the bank, they have the strength and balance sheet to absorb investments. We don't have the same strengths as bankers when it came to the credit card, so it let us refocus on retailing and let the bank focus on the credit card," he said. Long term the company has floated some ideas about increasing the opportunities available with the card, possibly offering personal mortgages or other opportunities, but he stressed those are just ideas.