JPMorgan and Citigroup are leading $1.15 billion of bank loans for Burger King Corp. that will refinance debt incurred during the December 2002 buyout of the Miami-based fast-food company. The facility consists of a six-year, $150 million revolver with pricing of LIBOR plus 1 3/4%, a six-year, $250 million term loan "A" with pricing of LIBOR plus 1 3/4% and a $750 million "B" loan priced at LIBOR plus 2%.
Burger King was bought by Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners from Diageo after a protracted auction. In order to make sure the deal was completed, Diageo guaranteed $750 million of five-year loans and $425 million of 10-year subordinated debt. Reportedly, this debt had to be refinanced by December 2005 or Diageo would collect a 5% fee on the outstanding amount.
Moody's Investors Service has assigned a Ba2 rating and Standard & Poor's has assigned a B+ rating to the bank debt. The ratings reflect Burger King's below average business profile and leveraged capital structure, noted Diane Shand, an S&P analyst.
Burger King operates in an extremely competitive industry and management faces the formidable challenge of regaining market share after experiencing large system wide problems from 1999 to 2003 due to senior management turnover, an inadequate product pipeline, weak marketing and promotions, and the poor financial health of a large portion of its franchisees, S&P states.
As an independent company, the management team was strengthened, new products were developed and financial and relationship issues in the franchise system were addressed, S&P adds. Greg Brenneman was appointed chairman and ceo last August. Prior to Burger King he was chairman and ceo of TurnWorks, a Houston-based private equity firm that focuses on corporate turnarounds. One of his prior assignments was president and chief operating officer of Continental Airlines.
Cedric Burgher, Burger King executive v.p. and cfo, referred calls to Ben Wells, treasurer, who did not return calls. Spokesmen for Texas Pacific Group and Bain Capital had no comment. A call to Goldman Sachs Capital Partners was not returned.