Silver Point Finance stepped in last week to resolve serious balance sheet issues for Salton, maker of the George Foreman grill. But the new $275 million credit facility, which takes out existing lenders, will cost the company with the credit priced at LIBOR plus 5% and a minimum coupon of 7%.
"LIBOR plus 500 is pretty steep," said Duncan Yin, a distressed debt analyst with CRT Capital Group. He added though that any lender jumping into an unsettled situation such as Salton's would seek to be paid a premium rate. Pricing on the revolver before the amendment was approximately 225 basis points lower. A Salton spokesman responded this was the most expedient option as it increases flexibility and borrowing availability. He declined comment on the other options considered. A Silver Point spokeswoman declined comment.
"The company probably wanted to get something done quickly to reassure suppliers heading into the seasonal inventory build. Now that they've secured the immediate future, they can be a little more diligent in finding cheaper sources of financing going forward," explained Yin. "The company still needs to post a good Christmas '04 season with meaningful cost reduction and then go back to the high-yield market. But [the] bank deal gives them the time to do that. Now they won't be living on the razor's edge, dealing with a bank group that wants to get out as quickly as possible," he added.
Salton was in talks with its lenders to obtain more cash and waivers after busting the fixed charge covenant on its credit facility and there was talk of a potential bankruptcy filing. (LMW, 6/7). The company entered into a forebearance agreement with Bank of America and Wachovia Securities, but part of the agreement was that Salton find additional funding of at least $25 million. Instead, Salton signed the agreement with Silver Point to amend and restate the existing credit agreement, providing more availability and relaxed covenants. Wachovia will continue to be collateral agent on the facility, but according to the credit agreement Silver Point has taken on 100% of the commitments of the existing lenders. The approximately $100 million outstanding on the revolver will be converted into a term loan, with 103, 102, 101 call protection.
Despite the cost of the facility, Yin sees it as a win-win for the company and lenders. "Silver Point knows what they got into here and will be much easier to deal with," Yin stated. The bank debt has stayed around par throughout the situation but the $125 million of 10 3/4% bonds and $150 million of 12 1/4% notes have rallied from the 74 and 63 range, respectively, to the mid 80s.