Merrill Lynch Capital and Citigroup last week offered more bait to lure investors into Carlyle Management Group's $325 million acquisition credit for Breed Technologies, but tickets still came up short. The lead banks cut the size of the deal, threw in an original issue discount and boosted the coupon, but were still looking at a post-close selldown as they moved to wrap up the deal last Friday. The credit had to close and fund last week for the acquisition of the airbag, steering wheel and seat belt company to stay on schedule.
The changes last week were the second round for the deal that launched last month. Merrill's middle-market group and Citi added an original issue discount of 98 for all three tranches and boosted a LIBOR plus 10%, six-year silent lien "C" loan from $50 million to $100 million last week. The "B" piece was decreased from $210 million to $150 million and pricing was increased from LIBOR plus 41/2% to LIBOR plus 51/2%. The revolver was decreased from $100 million to $75 million and priced at LIBOR plus 4%.
"[Merrill and Citi] are still in a post-closing selldown," a banker explained, adding that the lenders are still actively seeking commitments for the financing that will affiliate Breed with Carlyle's Key Automotive Group, which includes plastic auto-parts maker Key Plastics. Carlyle acquired Key in 2001 while in bankruptcy. The banker noted the majority of the deal was circled and the rest should fill within the next two weeks. The "C" loan had about $90 million committed as of late last week and the "B" was 100% spoken for, but waiting on official commitments, the official added. The revolver was fully subscribed. Robert Radway, managing director and president of Merrill Lynch Capital, did not return calls. Citi officials declined to comment. An official at Carlyle did not return calls. Officials at Key and Breed could not be reached by press time.
"[Key and Breed] are second rate players and they were both bankrupt companies," a buysider who passed on the deal said of the companies' past financial problems in a competitive auto-parts sector. He also noted a significant integration risk. But another investor said Carlyle's turnaround firm is a good bet for making Breed a success, plus the juiced up pricing made the deal more palatable. The first investor added that since competitor TRW Automotive's paper is now trading in the 99 range rather than its previous 98 levels, the Breed deal does not look as unattractive as before. A dealer added that if he had to pay par for TRW, at some level Breed could be attractive. Still, he found it hard to say if enough investors would come in, even now. "The whole thing is about greed overcoming fear," he noted of the decision to buy into any deal of this nature. Breed totaled more than $1 billion in sales last year, but the acquisition price tag was heard to be around $300 million.