Credit Suisse First Boston and UBS have rejiggered the financing backing Leonard Green Partners' leveraged buyout of FTD. The term loan drops from $100 million to $85 million and the equity component dips from $194 million to $184 million. The high-yield bond portion has been increased from $150 million to $175 million. The financing also includes a $50 million revolver, which will be undrawn at the time of closing. Pricing was also trimmed 25 basis points on the "B" loan from LIBOR plus 3%. The revolver is priced at LIBOR plus 23/4% with a 50 basis points commitment fee.
"The structural change was caused by the strength of [the] overall financing markets and the fact that the bonds [were] priced at 73/4%, which is extremely attractive long-term fixed-rate capital," said Tim Flynn, v.p. at Leonard Green. "The outstanding free cash flow characteristics of the business allowed us to put $10 million more of leverage on it. In the previous structure and the existing, the equity contribution is extensive--well over 40%. Even with the revised structure, total debt is still only five times."
Charles O'Shea, v.p. and senior analyst with Moody's Investors Service, attributes the structural change to a receptive market. But the change led Moody's to downgrade its rating on FTD's credit facility to B1 from Ba3, only one day after assigning it. The increase in total debt along with the decrease in equity result in higher leverage profiles than originally anticipated. Total leverage increases from about 4.9 times to about 5.1 times. "FTD's got probably the best free cash flow dynamics of any business we've seen in a long time. It pays down debt very quickly," Flynn said. "With $85 million senior debt and $50 million EBITDA, senior leverage is extremely conservative."
O'Shea noted that a large demand for single-B paper is going to drive a lot of decisions that issuers will make. "How much sub-debt can they carry and maintain at X rating? What rating do they really feel they need to maintain from a cost perspective?" O'Shea asked. "There's certainly a trade-off there." Commitments will be secured this week and the deal is expected to close Feb. 24. Calls to Carrie Wolfe, FTD's cfo, were not returned and an FTD spokeswoman declined comment.