Day Reduces Interest Costs, Improves Amortization

The new $187 million loan package for Dayton, Ohio-based Day International will allow the company to reap the benefits of lower interest costs and a reduced loan amortization schedule, noted John Sico, an analyst with Standard & Poor's. The company is using the proceeds from the new loan to repurchase its 111/8% senior unsecured notes and repay the company's existing credit facility. "We are a little more comfortable that they have less refinancing risk," said Sico. S&P has assigned the proposed loan a B rating. "The S&P rating, from what I know, seems to be aligned with what we expected," said Thomas Koenig, cfo of Day (see related story, page 3).

The loan comprises a $20 million, five-year revolver; a $32 million, five-year delayed-draw term loan; a $30 million, six-year "A" tranche and a $105 million, six-year "B" term loan. The delayed-draw term loan is earmarked to back a potential acquisition, which is identified only as a transaction of moderate size. The new loan also features an excess cash-flow sweep that reduces as the company's leverage declines. Moreover, the company's new loan will have an early maturity, September 2007, if Day has not yet refinanced its 91/2% notes due in March 2008.

Day has been able to establish leading positions in both its image-transfer products business, from which it derives 80% of its revenues, and its textile division. S&P notes that the company has a wide customer base and geographical diversity. Despite moderately cyclical and mature markets, Day anticipates new product introduction, cross selling opportunities and expanded geographic reach to drive performance.

But financial risk is still high due to Day's restrictive bank covenants, limited financial flexibility and significant debt levels from two leveraged buyouts, according to S&P. The company does not maintain any cash balances, but is expected to have $20 million available under its new revolver and that should provide the company with some liquidity