Syndication is set to launch today for the six-year, $160 million "B" loan backing Oak Hill Capital Partners' $700 million acquisition of Duane Reade. Credit Suisse First Boston and Bank of America are leading the bank debt.
The financing also includes $195 million of senior subordinated notes due 2011, $245 million in equity and $150 million from a $250 million revolver. Total debt-to-EBITDA will be 8.7 times. The company is highly leveraged and will slowly grow out of that as their profitability improves, but it will be a slow process, noted Diane Shand, an analyst with Standard & Poor's. Duane Reade has been affected by the weak New York economy and increased competition since the fourth quarter of 2001, S&P notes.
The revolver and term loan are both rated B by S&P, but the revolver has a recovery rating of 1, while the "B" loan has a recovery rating of 2. The revolver is secured by a first lien on inventory, accounts receivable and script lists. The term loan is secured by a first lien on property, equipment and intangible assets. The real estate upon which the term loan creditors have first lien provides significant value even in a distressed scenario, S&P says. A Duane Reade spokeswoman declined comment and an Oak Hill spokesman did not return calls.