DLJ Merchant Banking Partners II is targeting a $396 million dividend from Mueller Group's recapitalization and some buysiders are grumbling. The payout represents more than 150% of the firm's invested capital, one loan player claims. "We think this one may be just too aggressive," he noted. The recap comprises a new $635 million credit facility, $225 million second priority senior secured notes and $190 million senior subordinated notes.
DLJ Merchant Banking Partners II owns about 94% of the company, which it bought back in 1999. "This company has done well and has always been teed up a little too aggressively. At some point you have to say, 'this is too much,'" the buysider added. The dividend increases consolidated pro forma debt by almost 70%, to $1.06 billion from $626 million and Mueller's leverage ratio increases from 3.7 times to 6.5 times, according to Moody's Investors Service. Thompson Dean, head of leveraged corporate private equity at DLJ Merchant Banking Partners and David Wittels, managing director at the private equity shop, did not return calls.
Another loan investor also noted the good performance of the company, but wondered if the deal was too aggressive. "In September, they did an amendment to take out some sub-debt at the operating company with bank debt," he said. "They went from a structure that had sub-debt to an all-senior structure. The bank debt was priced at LIBOR plus 23/4% which was off market at the time. Leverage was above three times. This deal kind of takes it over the top."
The bank portion comprises a five-year, $100 million revolver; a seven-year, $535 million term loan; and seven-year, $225 million second-lien term loan. The first-lien portion is being talked at LIBOR plus 3-31/2%, while price talk on the second-lien tranche is talked at LIBOR plus 5%. There is a 50 basis point commitment fee on the revolver. Credit Suisse First Boston is leading the deal with J.P. Morgan and Deutsche Bank holding agent roles. The credit hit the market on March 24.
Mueller is a supplier of flow control products used in distribution systems for municipal drinkable water and natural gas. A Deutsche Bank spokesman declined comment and a J.P. Morgan spokesman referred questions to CSFB. CSFB bankers and spokesmen did not return calls. Darrell Jean, Muller's cfo, could not be reached by press time.