DRS Technologies has tapped the bank loan market to increase an existing $240 million credit facility by $100 million to back the merger between its wholly owned subsidiary Prince Merger Corp. and Paravant, a defense electronics manufacturer. Increasing the credit was the best and most efficient option to fund the merger, noted Donald Hardman, DRS treasurer. He said a high-yield issuance was always an option, but a company has to weigh whether it is willing to give up cheaper pricing in the bank loan market for longer-term debt. The company is also currently pursuing an equity offering that could provide financing for future acquisitions.
Funds for the transaction, which totaled about $92 million, were provided by a $75 million increase to the company's $140 million term loan and cash on hand, said Hardman. The extra $25 million added to the revolver is to ensure extra liquidity going forward, he explained. Some new lenders, which include both banks and institutional players, were brought on to provide the extra capacity, explained Hardman. The pricing on the bank debt remained unchanged with the addition. Both tranches are priced on a grid tied to leverage with an out-of-the box spread of LIBOR plus 31Ž 4% on the term loan and LIBOR plus 23Ž 4% on the revolver. Maturity dates for the credit also remain unchanged with the revolver expiring in 2006 and the term loan maturing in 2008.
The bank debt of Parsippany, N.J.-DRS was tweaked in connection with the acquisition of The Boeing Company's sensor and electronic system business last year. At the time, the company refinanced a $160 million facility and increased the size of its bank loan to accommodate the $67 million transaction. DRS also changed its lead lender from Mellon Bank to Wachovia Bank, but Hardman, who has only recently been appointed to the office of treasurer, was unable to comment on the decision to switch leads. Mellon still participates on the credit as the documentation agent.