BNP Paribas edged out existing lead Deutsche Bank and other relationship lenders on a $180 million refinancing for Oriental Trading by pitching the simplest structure and most attractive bid to the sponsor, Brentwood Associates. After deciding to do a refinancing earlier this year, Brentwood went out to key relationship banks and asked for responses to different structures, said Anthony Choe of Brentwood, who is also a director of Oriental Trading. "BNP was flexible in its approach to different considerations," he added, noting that the most appropriate was a plain-vanilla structure.
Other options included a high-yield bond component or other higher-margin pieces, but this was not the correct plan for the company, Choe noted. "Structure, timing, execution and, of course, price were factors," he said. Choe declined to name the other relationship lenders or detail their specific proposals. Officials at Deutsche Bank and BNP declined to comment.
Deutsche Bank led the debt financing backing the leveraged buyout of Oriental Trading, an Omaha, Neb., online and mail-order catalogue company, in 2000. According to Choe, the early refinancing is being done for several reasons. "We talked conceptually at Brentwood in the fall of last year after looking at how fast leverage was reducing," he said. Specifically, the opportunity to take out high-interest mezzanine debt was important, he noted, adding that approximately $78 million of mezzanine notes will be taken out with a negotiated pre-payment.
Furthermore, the deal cleans up the capital structure in preparation for a possible initial public offering next year. "The old facility dictated that 100% of proceeds from an IPO had to repay debt but, considering the solid cash flow and stable leverage, it does not make sense to pay off all leverage," Choe explained. All the institutions offered to accomodate the IPO, but BNP's bid was the most rational, he said, declining to elaborate.
The deal consists of a $150 million "B" term loan and a $30 million revolver priced at LIBOR plus 21/ 2% and LIBOR plus 2%, respectively. The existing facility is $165 million, split between a $30 million revolver, an $85 million term loan and a $50 million "B" loan. Pricing was LIBOR plus 31/ 4% on the pro rata and LIBOR plus 33/ 4% on the "B" loan.
Investors are upbeat on the new credit, citing the stable, strong cash flow. More than $60 million in debt has been paid off through cash flow, one buysider noted, adding that the deal is expected to garner a four-B rating. Previously, the bank debt had a Ba3 private rating, but total leverage has improved from 4.6 times to 2.7 times since the LBO, Choe said.