PETCO Animal Supplies has clinched cheaper pricing after coming to market in an effort to cut its borrowing costs. By replacing a $193.5 million "B" term loan with a new "C" loan of the same size, the company was able to cut its interest rates from a spread of LIBOR plus 31/ 2% to LIBOR plus 3%. Norman Dowling, v.p. of finance, said it was a combination of strong company performance and market conditions that encouraged the company to go forward with the refinancing.
In addition to lower pricing, the new term loan is designed to give the pet supply retailer a greater allowance for capital expenditure, Dowling said, explaining that the company wanted to negotiate as much flexibility as possible. Furthermore, he noted that there were some new lenders that came into the credit to replace ones that chose to bow out of the deal, which is led by Goldman Sachs and Wells Fargo. He declined to speculate on the investment decisions of those who left.
The new term loan joins the company's seven-year, $70 million revolver, the pricing of which is tied to a leveraged-based grid. The credit's maturity dates and amortization schedule remain unchanged by the refinancing, Dowling noted.
The San Diego company initially secured the credit facility in 2000 as a part of a larger recapitalization plan that culminated with the company going private that October. The loan was refinanced last fall, but leverage as measured by debt-to-EBITDA has since gone from 1.5 times senior and three times total to 1.4 times senior and 2.6 times total. In addition, PETCO went public again in the first quarter of this year and repurchased $30 million in senior subordinated notes with some of the proceeds (LMW, 8/5).