Bank debt portions were increased while the bonds were decreased for both WMG Acquisition Corp. and Sealy Mattress Co. after strong demand from the bank market. WMG Acquisition's "B" loan was increased to $1.2 billion from $1 billion, decreasing the dollar-denominated bonds to $465 million from $615 million, while J.P. Morgan and Goldman Sachs decreased Sealy's notes by $100 million and added a nine-year, $100 million unsecured term loan.
WMG's term loan together with the $250 million revolver now represents almost 70% of total debt. As a result of the structural change, Standard & Poor's lowered its recovery rating on the facility from 3 to 4. The 4 rating indicates a 25-50% recovery of principal in the event of default, as opposed to a 50-80% recovery indicated by the 3 rating. WMG's pricing was also cut by 25 basis points to LIBOR plus 23/4%. In addition, there is a step-down provision that could bring the spread to LIBOR plus 21/2% depending on leverage. Bank of America, Deutsche Bank, Lehman Brothers and Merrill Lynch are leading the debt.
The WMG credit backs the $2.6 billion acquisition of Time Warner's Warner Music Group by an investor group led by Thomas H. Lee Partners, Edgar Bronfman Jr.'s Lexa Partners, Bain Capital and Providence Equity Partners. Proceeds from the Sealy facility are being used to fund Kohlberg Kravis Roberts & Co.'s $1.5 billion acquisition of Sealy Corp. The deal also includes a $125 revolver, $560 million term loan and $390 million senior subordinated notes. Officials from all six banks either did not return calls or declined comment.