A $120 million "B" term loan backing Code Hennessy & Simmons' $275 million buyout of Otis Spunkmeyer hit the market last week with pricing of LIBOR plus 31/ 2%. Merrill Lynch and J.P. Morgan are offering investors 25 basis points upfront for commitments to the six-and-a-half-year "B" piece. Syndication is expected to wrap up within the next couple of weeks. Officials at the two banks declined to comment.
The "B" loan is part of a $140 million bank facility that includes a $20 million revolver. The six-year revolver is priced at LIBOR plus 3%, but Merrill and J.P. Morgan do not plan to syndicate that portion of the loan. In addition to bank debt, the buyout is being funded with $128 million in equity and a $40 million private placement of senior subordinated debt (LMW, 7/22).
The bank loan garnered a B+ rating from Standard & Poor's and, as of press time, had not yet been rated by Moody's Investors Service. Ron Neysmith, associate director at S&P, said the rating reflects Otis Spunkmeyer's narrow business focus and its high leverage following the buyout, which is expected to be 3.8 times on a total debt-to-EBITDA basis. Those concerns are partly offset by the company's solid brand franchise and its frozen food distribution network, which would be costly for a competitor to create, he noted.