Rent-A-Center's $400 million "B" loan oversubscribed after lead banks Lehman Brothers and J.P. Morgan pitched the company's $600 million refinancing package to investors last Tuesday. A banker familiar with the deal would not discuss the specific commitment levels, but he confirmed that the "B" piece is being offered at par in the LIBOR plus 21/2-23/4% range. He added that it looks like pricing on the "B" loan could end up closer to the LIBOR plus 21/2% range, but this was not definite. The $80 million letter of credit facility and $120 million revolver are also being pitched to lenders on a three-to-one basis where they commit $3 to the letter of credit facility for every $1 committed to the five-year revolver.
The banker noted that the letter of credit facility will be fully utilized at closing. Pro rata lenders committing $15 million will get a 5/8% up-front fee upon allocation, while $20 million lenders will receive a 3/4% up-front fee for pro rata tickets.
An investor said the letter of credit and revolver offer was not a bad deal. "That's a good ratio," he said. He added that lenders are usually asked to commit more to the revolver. "Often it's the other way around, . . . sometimes they try to stick you on the revolver," he noted. The banker explained that since the revolver is already spoken for by the two leads and agents Bear Stearns, Morgan Stanley, Wachovia Securities and UBS Warburg, the revolver does not pose a problem to fill out. But the top tier lenders are still trying to sell down their revolver stakes a bit, he added. "It's a more attractive asset," he noted of the letter of credit line since it will be fully tapped upon closing. Lehman is leading all four of the company's recapitalization transactions (LMW, 5/5). Last Tuesday, the company also closed the sale of $300 million in new 71/2% senior subordinated notes. A Lehman official declined comment and a J.P. Morgan spokesman did not return calls. Robert Davis, v.p. of finance, cfo and treasurer of Rent-A-Center, did not return calls by press time.