Applica, a manufacturer of small electronic consumer goods, worked with lead lender Bank of America to secure a $205 million asset-based credit facility for the company in order to score attractive pricing in a tougher economy. Adam Kaplan, treasurer, explained that looking ahead the company knew the softer economy would result in a tougher sell for a cash-flow deal. "We knew covenants would be stepping up and so would pricing," he said. He expects asset-based lending to become more mainstream as leveraging cash flow is more pricey than leveraging assets.
The company's deal is now backed by its assets -- a move that allowed the company to increase the amount of the deal from $180 million to $205 million while keeping fee costs lower and pricing the same. "B of A and the other participants did a tremendous job," said Kaplan of the company's banks, noting that the deal closed in less than a month and had $125 million of commitments in before the bank meeting.
Originally, the company closed a $345 million cash flow structure in August 1998. That deal was broken down into a revolver, an "A" term loan, a "B" term loan, and a "C" term loan. The company has been through a series of amendments on the line and last November it decided to pay down debt by reducing inventory. The company reduced the revolver portion to $80 million from $160 million, keeping the term loan 'A' at $40 million and term loan 'B' at $60 million. "The 'C' was paid off through an asset sale so then we just had the 'A' and 'B' and revolver to refinance in November," he said. When the company decided to go with the asset-based structure it opted to do an all-revolver deal. "When we decided to go back to B of A the bank said it could raise the revolver to $205 million," he said. "Our balance sheet allowed us to do an all revolver asset-based deal," he added.