J.P. Morgan, Credit Suisse First Boston, Deutsche Bank and Merrill Lynch are bringing back a reworked bank and bond deal for Collins & Aikman, backing the acquisition of Textron's auto-trim business for sponsor Heartland Industrial Partners. The expectation is that the bond market will be more receptive than in September when the original deal was to be launched. The acquisition, announced in August, was put on the backburner following Sept. 11 and the collapse of the high-yield debt market, explained John Peisner, senior v.p., investor relations for Collins & Aikman. A reworked deal with improved debt to EBIDTA ratios, a reduced price and more stock as currency, is the other major factor that should ensure completion of the financing by year-end, he noted.
The $700 million credit, launched on Dec. 5, is split into a $212.5 million, four-year revolver priced at LIBOR plus 3 3/4% with a 1% commitment fee on offer. A $175 million term loan "A" is also priced at LIBOR plus 3 3/4%, while the $312.5 million term loan "B" has a spread of 4 3/4% over LIBOR. The deal is contingent upon the successful completion of a $325 million private placement, led by the four banks, noted Peisner, adding this should not be a problem.
Some bankers see the $700 million bank deal as a tough sell, with the auto sector hit hard by recession. One banker said even with 0% financing these are tough times in the automotive business. A CSFB banker said the existing bond spreads have gone from 15% to 12% and there has been a major reduction in debt through a purchase price reduction. There is very low senior secured leverage, he added. Collins & Aikman will have a less than four times debt to EBITDA ratio and the bond market has certainly returned, noted a banker, but the auto sector has not. One banker noted it did not appear to be an easy deal by virtue of the spread at LIBOR plus 4 3/4%. But, he added, it is a decent-size credit and the market -- starved of new-issue paper -- could be enticed.