Fleming Companies received strong support from the institutional segment of the bank loan market as it came to market last month with a bank, bond and equity financing package. According toMatt Hildreth, treasurer, equity and bond investors turned colder as the offerings were proceeding. "Safeway missed their earnings the day before the equity offering, so [proceeds there] were a little less than planned," Hildreth said. "We also got the bonds done, but at the high end of price talk as the market backed up a little."
While the bond and equity markets may have been a little tougher, the "B" loan market more than compensated. The $350 million "B" term loan was twice oversubscribed. This led to an increase to $425 million, while the pro-rata portion of the facility was downsized from $600 million to $550 million. "This demonstrates the advantage of executing simultaneously in different markets," Hildreth said. "With the bond market as jittery as it is, we could have moved to the "B" if the offering had not gone well. It was still a home-run, but three months ago we would have expected an 83/ 4% yield tops on the note offering." The $200 million in senior notes were priced at 91/ 4%.
Not all aspects of the bank market were receptive though, as the malaise of pro rata continued. "People don't want pro rata," Hildreth said. "As a bank, you are asked to commit capital to an unfunded revolver that pays less than the LIBOR plus 21/ 4% on the funded loan." As a result, the revolver, which offers a spread of 13/ 4% to 2% over LIBOR, was reduced in favor of the "B" piece, he noted.
Proceeds from the financing package will be used to repay borrowings under the Fleming's previous bank facility, which was set to expire this summer, and to back the company's $295 million acquisition of Core-Mark International. Deutsche Bank was lead adviser on the acquisition, led the bank group jointly with J.P. Morgan and was sole bookrunner on the bonds.