Credit Suisse First Boston supplanted incumbent Lehman Brothers to lead a $515 million recapitalization for restaurant-chain Buffet's after the Lehman bankers who led the original leveraged buyout in 2000 departed the firm. With the door open, CSFB leveraged its position as lead on existing mezzanine debt and walked in with a pledge to appease mezzanine investors, who needed some caressing. "Getting the mezz holders to agree to the terms was important, and they were due some serious pre-payment penalties," one banker said. The credit hit the market last week.
Lehman led the $330 million loan for Caxton-Iseman Capital to buy Buffet's in 2000. Although FleetBoston Financial, a co-lead from the original transaction, is still syndication agent, Lehman is not to be seen on the new bond or bank deal led by CSFB. "When the [Lehman] bankers left after the LBO, the relationship between Caxton and Lehman was gone," said a banker who looked at the bond business. "They were then open to other people's ideas, but CSFB had the inside track as they arranged the $97 million mezzanine financing for the LBO and were in the best position to get the mezz investors on board for the recap."
CSFB negotiated a prepayment fee the company could live with and investors were willing to take, the banker added, noting the deal was held up for several weeks as this was being done. Officials from Caxton, Buffet's and Lehman did not return repeated calls. A CSFB banker declined to comment.
The new financing consists of a $255 million bank deal and $260 million of senior subordinated notes. The bank debt is split between a $205 million, seven-year "B" loan, a $30 million revolver and a $20 million letter of credit facility. The note offering will be led by CSFB, with UBS Warburg, Morgan Stanley and Salomon Smith Barney. The combined proceeds will be used to refinance $212 million of bank debt, redeem the mezz debt and make a $150 million distribution to Buffet's. The BB-/B1 deal is priced at LIBOR plus 31/ 2% for the "B" loan, while the pro rata has a LIBOR plus 31/ 4% spread. Commenting on prospects for the deal, one banker said the market is hot and this type of buffet-style restaurant is a relatively safe place. Another said the company has performed well and this should keep the existing bank-debt investors happy.