Credit Suisse First Boston last Thursday sent out the books on a $1.27 billion credit facility for Jostens Intermediate Holding Corp. The credit backs the recap of Jostens, Von Hoffmann Corp. and Arcade Marketing by Kohlberg Kravis Roberts & Co. and DLJ Merchant Banking Partners and its proceeds are going in one end of the deal and out the other as one deal sponsor pays off another.
The credit facility and an equity contribution from KKR are being used to pay existing shareholder DLJ, which will keep a stake in the new Jostens. "I don't see a lot of new cash equity coming into the company or staying there at any rate," noted John Page, v.p. senior analyst with Moody's Investors Service. "Effectively this is a sponsor-to-sponsor transaction where you have KKR buying an investment into the surviving company that is the form of the equity. Most of that money is going to the existing owner, DLJ. So if it's coming in, it's going right out again. I don't see that in itself providing a lot of support to senior secured debt holders."
Bank of America and Deutsche Bank joined the credit prior to syndication as co-arrangers, fully underwriting the debt with CSFB. The bank debt comprises a $250 million revolver, $150 million "A" loan and $870 million "B" loan. Price talk is LIBOR plus 2 1/2% on the pro rata and LIBOR plus 2 3/4% on the "B" loan, a banker said. In addition to the underwriters, eight banks have committed to the deal and a number of institutional accounts put in tickets in the hours after the meeting. Leverage is increasing from 5.95 times to 6.33 times.
But investors in the B1-rated credit facility are still safe. "We believe the debt holders are adequately protected," Page added. The financing also includes $500 million of senior subordinated notes due 2012. The Jostens Holding Corp. debt, $163 million of senior discount notes due 2013, will be kept in place but all of the other debt is new, which will be used to take out the existing Jostens, Arcade and Von Hoffmann debt.
Moody's has assigned a B3 rating to the new notes and the existing holding company notes are rated Caa2 by the agency. "We feel that the senior secured lenders are in a relatively good position compared to other holders of the company's paper," Page said.
After the transaction, which is valued at $2.2 billion, KKR and DLJ will each own 45% of the newly created Jostens Intermediate Holding Corp. Jostens is a producer of yearbooks and class rings; Von Hoffman prints textbooks; and Arcade Marketing, also known as AKI, prints and manufactures sampling products for the cosmetic, fragrance, consumer packaged goods and food and beverage industries. Spokesmen from KKR and DLJ declined comment. Officials from the three underwriting banks either declined comment or did not return calls.