Lehman Brothers and Bear Stearns have nabbed the lead roles on Pinnacle Entertainment's new $300 million credit facility, replacing Bank of America, which decided not to pitch to keep the business. "Lehman and Bear Stearns showed up somewhat out of the blue and pitched us a deal in the context of a very aggressive market," said Steve Capp, Pinnacle's cfo. Lehman and Bear Stearns separately approached Pinnacle with some of the ideas executed. "We kind of married concepts from both of their proposals and put them on the same pages as arrangers and book runners on the deal," Capp said.
The new facility replaces a Bear Stearns and B of A-led $225 million facility, which required Pinnacle to raise $40 million through non-debt proceeds by June. The objective of the refinancing was to increase the size, reduce the interest rate and gain more flexibility for the construction of a couple of projects, Capp said. The new facility consists of a six-year, $225 million term loan and a five-year, $75 million revolver. "The refinanced deal is very important. It took the gun away from our head in terms of having to raise capital and now we can raise it when it makes sense," Capp said.
Pinnacle's leverage is presently high due to construction projects but the company is in the process of deleveraging. "The market gave us a lot of flexibility in terms of leverage, which was going to be quite high," Capp said. "We needed that kind of flexibility in order to avoid having to sell assets or issue stock to raise some money at a time that would have been disadvantageous to the company." Pinnacle also succeeded in cutting interest costs. The old loan was priced at LIBOR plus 45/8%, while the new one carries a spread of LIBOR plus 31/2%. "That difference over the life of the deal is more than enough to pay for the fees and expenses required to put the deal in place," Capp explained.
Lehman has worked with Pinnacle in the past, said Mark Lies, head of loan syndications at Lehman. In addition to the term loan, Lehman has recently done a bond deal and equity offering for Pinnacle, he added. Capp was working on the original credit facility as a banker with Bear Stearns before crossing over to work for Pinnacle. He also previously worked for B of A. Capp said relationships and histories have formed with bankers over time. "It does help to know people at those institutions and know them well," he said. "But they still have to compete and we made the decision that was best for the company at this time." Deutsche Bank, Société Générale and Hybernia Bank are the other lenders on the revolver. B of A chose not to take part in the new loan, Capp said. A B of A spokeswoman, and Andrew Susser, director of research, gaming, lodging, leisure and supermarkets, did not return calls.