Graham Packaging is in the market with a new $1.85 billion credit that investors say should cruise on the company's reputation. Proceeds from the credit will back Graham's $1.2 billion acquisition of the plastic container business unit of Owens-Illinois. The credit comprises a $250 million revolver, $1.35 billion first-lien "B" loan and $350 million second-lien term loan. The revolver and "B" loan went out at LIBOR Plus 2 3/4%, while the second-lien term loan is being offered at LIBOR plus 4 3/4%.
The credit has always had a low coupon relative to its rating, buysiders noted. "People like the business, but it's always been sort of a low-rated business," one loan investor noted. "The market kind of thinks this company is better than the ratings it has historically received," a source close to the transaction noted.
The Blackstone Group acquired Graham six years ago. "When the deal was done in 1998 it was leveraged at eight times but it was very well received in the market," a Blackstone official said. "The company has preformed very well and has a good reputation with the lending community."
The company has delevered during the course of Blackstone's ownership and management has a good track record of operating well in a leveraged environment. "The company's margins have expanded over the last six years while we've owned the business during a period of time where a lot of competitors have seen margins contract," he added.
Standard & Poor's has assigned a B rating to the revolver and first-lien term loan and a CCC+ rating to the second-lien term loan. The investor said he suspects the pricing on the second-lien may have to go wider because of the triple-C rating which limits the amount of people who can buy it. Moody's Investors Service assigned a B2 rating to the first lien and B3 rating to the second-lien term loan. "The ratings agencies tend to take a healthy dose of skepticism to merger and integration and synergies," the source said. "These two companies are complete mirror images of each other and so this integration should be one that should happen relatively well."
Deutsche Bank, Citigroup and Goldman Sachs lead the credit. Deutsche Bank and Citi have been the two main banks for Graham since Blackstone acquired the company six years ago. Goldman has always been involved with the company as well and represented Don Graham when he sold the majority interest to Blackstone. "These have been the banks that have led the financing for the company in the past and were supportive of the company in the past and we've been pleased with the support we've had from that," the Blackstone official said.