The structure of Del Monte's new acquisition debt package led by Bank of America and J.P. Morgan was completely overhauled the week before it closed due to a red hot bond market, explained Thomas Gibbons, Del Monte senior v.p. and treasurer. The financing, which backs the acquisition of businesses from H.J. Heinz, had originally included a $900 million credit facility, $300 million in floating-rate notes, and a $300 million bond issue. Ultimately, the bond deal was upsized to $450 million. The bank deal was downsized so that a six-year, $600 million pro-rata piece was reduced to $495 million, and the $300 million floating-rate notes were rolled into the $500 million "B" term loan, which was then cut back to an eight-year, $750 million "B" tranche.
Gibbons said combining the "B" tranche and the floating-rate notes was a more favorable scenario for the company. The original floating-rate notes and "B" piece were priced at LIBOR plus 41/ 4% and 4%, respectively. Pricing on the combined institutional tranche was flexed down to a spread of LIBOR plus 33/ 4%. In addition, the floating-rate notes had a no-call provision, which does not exist in the "B" piece. "We got rid of the no-call provision and lowered the rate," said Gibbons, explaining the advantages of the combined "B" piece. The pro rata piece is priced at LIBOR plus 31/ 2%. The 85/ 8% senior subordinated notes mature in 2012.
Commenting on the choice of B of A and J.P. Morgan to lead the deal, Gibbons said relationship made the difference. "Both of those banks have been there for us and have worked hard to bring business to us," he said. UBS Warburg, BMO Nesbitt Burns, and Morgan Stanley also underwrote the transaction. In conjunction with the acquisition, the company also issued $157 million in new equity. Upon the completion of the acquisition, the company's leverage decreased from 4.4 times to 3.9 times.