Isle of Capri is planning to use proceeds from a Merrill Lynch-led equity offering to pay down at least $75 million in outstanding bank debt on the company's recently signed senior credit facility. But the equity market placed a bump in the road to execution of those plans last week, as the company's share price dropped from $20 to $16.50. The hit was prompted by the Illinois legislature's decision to raise gaming taxes, and it came despite the fact that Isle of Capri has no operations in the state.John Bakley, senior director of finance, said before the share-price dive that the company is looking to tap the equity markets to take advantage of recent higher valuations on the company's stock to pay down bank debt. "We want to become less levered," he said. He declined to comment after the drop on whether the offering would proceed.
Lawrence Klatzkin, a gaming analyst at Jefferies & Co., said the offering would not happen if the share price does not recover to the previous levels. "They are not in need of paying the debt down," he added. Bakley said that a reduction in bank debt will help the company achieve coverage and leverage ratios that it has targeted, while new capital exceeding $75 million will be put into developing existing casino properties. He declined to comment on whether a change in ratios will affect pricing on the deal.
The credit, which was signed in April, comprises a $250 million revolver and a $250 million term loan. The company will pay down the revolver part of the bank debt.
CIBC World Markets was lead arranger on the company's bank debt but took a co-lead position on the upcoming equity offering, which will be led by Merrill Lynch. Deutsche Bank has a co-lead manager role. Interestingly, Merrill is not among the company's existing bank group.Rex Yeisley, cfo, said the company chose Merrill over CIBC because he believes that Merrill offered the best possible execution for an equity deal. Yeisley said the deal, which will offer 5.35 million shares, should be completed by mid-summer.