FAO, formerly Right Start, has rolled two asset-based lines into one $127 million facility on the heels of acquiring toy-stores Zainy Brainy and FAO Schwarz. The company put in place a $115 million, three-year revolver for its Zainy Brainy acquisition in September and also used an existing $10 million, four-year revolver it secured in January 2001. Both were led by Wells Fargo. The $10 million line was increased to $24 million for extra liquidity when the company acquired FAO Schwarz in January 2002 with the expectation that the lines would be consolidated in the spring.
The two lines were asset-based and therefore backed by liens to the company's assets. As the newly merged company consolidated its distribution and inventory, "It became important to put the two facilities together," said Raymond Springer, FAO executive v.p. and cfo. The new credit comprises a $115 million revolver and a $12 million term loan. The revolver is currently priced at LIBOR plus 31/ 2% and pricing varies depending upon the percentage drawn down. The term loan is held partly by FILCO Capital and is priced at prime plus 7%. The credit closed on April 30 and matures in October 2004.
Springer uniquely described his choice of Wells Fargo as "The devil you know versus the devil you don't," joking about lending options. "They've been good partners," he said on a serious note. He added that the bank was instrumental with the Zainy Brany deal and quickly increased Right Start's line for the FAO acquisition. "It's not all about price when you are in the retail business," he said, adding, "They work with you when things don't come out right." Right Start changed its name to FAO to leverage the brand equity associated with FAO Schwarz.