Shoney's replaced Bank of America and other lenders on a $135 million credit for its subsidiary Captain D's with a private equity fund that is hooking up with the company.Lone Star Funds has a merger agreement with Shoney's pending and the fund has taken out the bank debt as part of the union. The fund's new role as lender on the credit, which was given an extension by banks until March, eliminates Shoney's plans for a bond deal to take out the debt originally set to mature in December 2001. Shoney's, under pressure from banks and rating agencies, had been considering a bond deal heavily backed by Captain D's assets to raise capital to pay down the line. "We were looking for longer-term financing and then there was a change of plans when [Lone Star] came in," said Ernie McDaniel, Shoney's treasurer. Calls to officials at Lone Star Funds were not returned.
In December,Moody's Investors Service had the credit on review for a possible downgrade and Standard & Poor's downgraded the company as concerns were mounting around whether or not the company would be able to successfully refinance the deal. Jerry Hirshberg, analyst at S&P, questioned the creditworthiness of parent Shoney's at that time (LMW 12/24). Captain D's bank group eventually came to the rescue at the end of the month, with lead B of A granting the company a 90-day extension on the credit facility in anticipation of a financial plan that would repay the loan. At that time, lenders raised the pricing on the Captain D's credit from LIBOR plus 4% to LIBOR plus 5%. The current debt, under the pending merger agreement, has been reduced to a $130 million credit comprising a $115 million term loan and a $15 million revolver.
The deal, which now matures in October 2002, has been repriced by Lone Star at a fixed rate of 12.5% on both tranches.
If the merger does not close, Lone Star will continue as lender on the Captain D's credit and Shoney's will again have to reconsider its long-term financing plan.