Rent-A-Center is refinancing its credit facility to lower its cost-to-capital and get more favorable covenants. J.P. Morgan and Lehman Brothers will be co-lead arrangers and joint bookrunners on the credit, which will comprise a $200 million revolver and $400 million term loan.
In May, Standard & Poor's raised the company's senior debt rating to BB+, noted David Carpenter, director of investor relations. The upgrade was the impetus for the refinancing. "We're trying to negotiate lower cost-to-capital," Carpenter said. "And there are covenants within the agreement that we'd like to get more favorable terms, including repurchasing stock, capital expenditures and terms with regard to acquisitions."
The company is currently in negotiations with the banks on the new pricing. "Every 1/4% on our term loan saves $1 million a year," Carpenter noted. "Obviously we want to lower it as much as possible." The existing credit facility is made up of a $397 million term loan at LIBOR plus 2 1/4%; $120 million revolver at LIBOR plus 2%; and $80 million letter of credit facility.