Wachovia Securities is leading a new $275 million term loan for fast-food chain Jack in the Box that refinances debt at lower rates. Price talk on the term loan is LIBOR plus 2 3Ž 4%, whereas pricing on the existing $150 million term loan being refinanced is LIBOR plus 3 1Ž 4%. The new facility will also redeem $125 million of 8 3Ž 8% senior subordinated notes due in April 2008. With the note redemption, the company anticipates borrowing costs will be reduced by around $3 million annually.
One investor in the deal expressed some disaffection about the pricing and the sector. "We're not happy about the new pricing," he noted, adding that the fast-food industry is "always overleveraged." Leveraged restaurants do not seem to be successful in the long run, he stated. "But what are you going to do?" He said his fund is in the deal because it needs assets. "We've got loan cash and need to put it to work." On the plus side, the company has relatively high average unit volumes and good cash flow margins with the restaurants performing well in comparison to other quick-service restaurants, according to Moody's Investors Service (see Credit In Focus, page 7).
Jack in the Box is also amending its existing $200 million revolver. A company spokesman declined comment and calls to Wachovia bankers were not returned.