Owens Illinois was in talks with its banks last week to secure up to $1.5 billion in bank debt to finance the $1.46 billion acquisition of European glass container manufacturer BSN Glasspack. The acquisition will be 100% debt financed and all the debt will be under a "C"term loan, explained Jeffrey Denker, treasurer of Owens Illinois, in a conference call.
The "C" loan will be an add-on to the firm's existing $1.9 billion in credit facilities, comprising a $600 million revolver, $460 million "A" loan and an $840 million "B" loan. The new debt will have the same maturity date, April 2008, and will share the same collateral as the revolver, "A" and "B" loans, Denker noted. Deutsche Bank, Citibank, Bank of America and Scotia Capital are among the senior lenders. The existing term debt is priced at LIBOR plus 23/4%, but it could not be ascertained if pricing would be adjusted to accommodate the new leverage. Officials at the banks either did not return calls or declined comment.
The "C" loan will pay for the acquisition and refinance existing debt, Denker said. But he explained that it is unlikely all of the $1.5 billion will be drawn, as included in the refinancing calculations are BSN bonds that Owens Illinois now has to make an offer to buy at 101. But since the bonds are trading at 107, it is unlikely that the holders will trade them out, he noted. According to Moody's Investors Service, the delayed draw loan will be approximately $388 million. Moody's has assigned a B1 rating to the new debt, the same as the existing bank lines.
Owens Illinois is attempting to determine whether the existing debt to EBITDA covenant and fixed-charge covenant will need to be adjusted, Denker said. The secured debt is "higher than [Owens Illinois] would have liked," but the company is anticipating selling its plastics business or conducting an IPO of the division for $1 billion. Denker did not return calls for further comment.