UBS and Goldman Sachs are prepping a $500 million bank loan for office-furniture manufacturer Knoll that will refinance debt and pay a dividend to sponsor Warburg Pincus. The new credit refinances the company's $481.25 million bank facility that was due November 2005 and comprises a five-year, $75 million revolver and seven-year, $425 million term loan. Pice talk is LIBOR plus 2 1/2% on the term loan, a buysider said.
The recapitalization will bring leverage up from 3.6 times to 4.8 times. As a result of the increased debt both Moody's Investors Service and Standard & Poor's downgraded Knoll's ratings. S&P has given the debt a BB-rating and a recovery rating of 4, indicating a 25-50% recovery of principal in the event of default. Meanwhile, during the first half of 2004, EBITDA declined due to lower sales volume. The proposed dividend in a period of falling EBITDA suggests a more aggressive financial policy, S&P says.
The term loan has limited amortization at 1% before a bullet payment at maturity. When Knoll's leverage falls to 3.75 times or less, the 50% excess cash flow sweep will be reduced to 25%. The revolver is expected to be undrawn at closing. The credit is expected to launch a few days after Labor Day.
Warburg Pincus acquired Knoll from Westinghouse in February 1996 for $565 million. The company had an initial public offering in May 1997 but in early 1999 the share price slid and Warburg Pincus and management took the company private again in November that year. Barry McCabe, Knoll's cfo, and Warburg Pincus officials did not return calls. UBS and Goldman bankers either declined comment or did not return calls.