Aggressive Nebraska Book Recap Increases Senior Debt

Weston Presidio is pursuing an aggressive recapitalization of Nebraska Book Co. and Moody's Investors Service has assigned a B2 rating to the $215 million bank loan portion of the new financing.

The rating on the new senior secured credit is a notch lower than the rating attached to the company's existing $125 million credit due to the increase in debt compared to the company's tangible assets. The new facility is not as well covered as the previous one, explained Margaret Lane, v.p. and senior analyst at Moody's. J.P. Morgan is leading the new bank loan.

Weston Presidio is pursuing the recapitalization alongside its purchase of Haas Wheat & Partner's 56% stake in Nebraska Book. The company will also refinance its existing debt. The acquisition will be largely funded with debt and a portion of the company's cash balance, increasing the likelihood that Nebraska Book will consistently rely on its bank facilities more than in the past. The company is issuing $190 million of senior subordinated notes and NBC Acquisition Corp is also issuing $50 million of senior discount notes.

Post purchase, Nebraska Book will be 89% owned by Weston Presidio and 11% owned by management. Altogether, the new financing will leave the company highly levered and with a weak balance sheet, notes Moody's. "We are very comfortable with the proposed capital structure," said Alan Siemek, v.p. and treasurer for Nebraska Book. He explained that the company had a higher leverage multiple in 1998 at a time when the company was smaller.

On the plus side, Moody's notes that Nebraska Book has a solid market position in an industry that demonstrates favorable dynamics. The company has a strong EBITDA margin supporting an adequate coverage ratio for the new financing. Nebraska Book has a relatively stable business and is able to consistently generate cash flow. The company is expected to slowly ratchet down its debt, noted Lane.