Duane Reade has completed its first ever asset-based credit facility for $200 million. The largest drug-store chain in the New York metropolitan area decided to switch from a cash-flow deal to an asset-based structure in order to gain more flexibility and better pricing, said John Henry, senior v.p. and cfo. Henry said the company considered both cash-flow and asset-based alternatives early on in the refinancing process, but found the cash-flow rates and syndication requirements less appealing this time around. "[The new credit was] easier to syndicate because there are fewer banks involved," he added.
Duane Reade selected Fleet Securities to lead the new credit because of the lender's experience in asset-based lending. Fleet is a major player in this type of credit and the company also has a previous relationship with the lender, he explained. GE Corporate Financial Services also joined the five-year revolver, serving as syndication agent for the deal. Congress Financial Corp. is a documentation agent and CIT Group also joined the credit, Henry noted. Credit Suisse First Boston led Duane Reade's last cash-flow credit, Henry said, noting that the firm is not involved in the new deal. That credit had an $80 million revolver and about $3 million outstanding on an "A" loan and $60 million outstanding on a "B" piece, Henry stated. The CSFB-led credit was priced at LIBOR plus 13/4% for the pro rata tranches and at LIBOR plus 21/2% for the "B" loan. The new deal has a spread of 13/4% over LIBOR, he added.
Under the new facility, $184 million was initially available to the company on a borrowing-base formula and $104 million was tapped to repay borrowings on the previous credit. If Duane Reade expands its business, it can expand the facility, Henry noted, pointing to another advantage of the asset-based deal. The borrowing base is backed by inventory and receivables and Duane Reade's total debt is about $290 million, Henry said.