Banc of America Securities and Credit Suisse First Boston are providing Carter's, a branded marketer of children's apparel, with a $625 million credit facility to finance the $307.1 million acquisition of OshKosh B'Gosh. The new credit facility will also refinance Carter's existing $50 million of senior secured debt and could redeem its 10 7/8% senior sub notes.
Michael Casey, executive v.p. and cfo, said on a conference call that the credit will be split into a $500 million, seven-year term loan and a $125 million revolver. The pricing will be LIBOR plus 1 3/4-2% depending on ratings. Casey noted that Carter's is considering redeeming about $114 million of notes, but this depends on market conditions. Refinancing costs are $11.5 million.
Projected leverage is expected to be just over 3 times and interest coverage, at closing, will be 4 times, said Casey. By comparison when Boston-based private-equity firm Berkshire Partners bought Carter's in 2001, leverage was 4.7 times EBITDA, he said. "We're very comfortable with the leverage ratios," he noted. Both companies have very strong cash flow and Carter's has been owned by private-equity firms for a dozen years.
Debt-to-capitalization will be 55%, but in the next few years Casey is confident this will decline to the mid-30s.
The combined company will generate more than $1.3 billion in sales and control 352 retail store locations. Goldman Sachs advised OshKosh B'Gosh. The acquisition, which is subject to regulatory review, is expected to close in the third quarter of 2005.