URS has shuffled funds from a bond issue to the bank portion of a financing package backing its $500 million acquisition of EG&G Technical Services. "The bond market was tough, and bank debt is much cheaper," said Kent Ainsworth, cfo. "URS had the opportunity to put $25 million from the bonds onto the senior secured, replacing 12% notes with 6% bank debt." The "A" term loan was increased from $100 million to $125 million, while the bond issue was decreased from $250 million to $225 million. The bonds eventually ended up at $200 million, as $25 million generated from cash flow enabled a further reduction, he noted. In addition to the "A" term loan, the bank debt includes a $200 million revolver, which is undrawn, and a $350 million "B" piece.
The debt package, provided by Credit Suisse First Boston and Wells Fargo Bank, is part of a larger financing package backing URS' acquisition of the government contractor. In addition to debt, the San Francisco company used equity to fund the transaction. EG&G stockholders received $110 million in common stock and $48 million in a new series of nonvoting convertible preferred stock. Financing in excess of the purchase price was used to refinance the existing debt of EG&G and URS.
Several factors were considered when financing the transaction, Ainsworth noted, citing the cost of debt, the EBITDA multiples available and equity as a function of the price. "We don't want the transaction to be dilutive," he added. Before the transaction, the debt-to-EBITDA ratio was 2.9 times, but it is now 3.7 times. "URS wants it to be three times by mid-2004," he stressed. Similarly, the debt-to-capital ratio was 54% and now it is 58%. But by mid-2004, the target is to be below 50%, he noted.