NDCHealth Corp. was able to go back to the loan market to secure better rates and greater flexibility on its $225 million credit facility. "It was part of our current strategy to pay down debt or lower our current interest expense," noted Robert Borchert, v.p. of investor relations for NDCHealth. "We are focused on cost controls and that is one area where we are able to actively take steps to lower costs," he added. The recent changes will allow the company to decrease interest expense by about $525,000 per quarter. The company has also begun to prepay its senior debt.
The pricing on the company's $125 million term loan was reduced from 4% over LIBOR to a spread of 23/4%. NDCHealth also reduced the spread on its revolver from 3% to 21/2%, with the ultimate pricing linked to a grid tied to the company's leverage and credit ratings. Finally, the company was able to ease certain financial and operational covenants to give it greater flexibility.
"We felt that it was an appropriate time to go back to our debt owners to see if we could access better terms," said Borchert. He also noted that the company's performance has been improving. Borchert referred to the company's recent second quarter results for examples of improvements. He noted that the company's net cash from operating activities grew to $54.6 million in the six months ended Nov. 28 from $40.6 million from the same period last year. Free cash flow for that same period also improved 64%, he noted. "Obviously the cash flow improvements are of paramount importance to our debt holders," he said.
Merrill Lynch led the repricing effort. Merrill and Credit Suisse First Boston held the lead roles on the company's original deal that was completed in late 2002. Responding to a question regarding how the market responded to the company's credit tweaking, Borchert said the deal was "very smooth on both the transaction renegotiation and from the investor side."