Interstate Bakeries weathered a tough market last month, closing on $675 million in pro rata credit after carving out a $125 million add on institutional piece. Paul Yarick, treasurer, said the company was able to complete and oversubscribe the big pro rata deck of the deal despite a tough time in the market for most credits as the defensive profile of the food sector makes it more favored lately. "The transaction was put together by J.P. Morgan and they were able to get it done within the time frame," he noted. The deal was launched at the end of June. Originally the structure comprised a $300 million revolver, and a $500 million "A" term loan.
To get the deal through the market, Yarick explained the bankers decided to tap the institutional market by carving out a $125 million "B" tranche, reducing the "A" tranche to $375 million. "We got into the market for the first time to stay ahead of the others," said Yarick, explaining that to keep the company's deal competitive with other food deals in the market it was important to showcase a "B" piece. Yarick noted the company hasn't looked for institutional investment in the past because it prefers unfunded debt. "It's a better financing mechanism for us to borrow and pay it back, rather than borrow it all at once," he said.
The new credit replaces a $610 million, 364-day revolver that matures this month and a $350 million "A" term loan, maturing next February. The term "B" was reportedly priced at LIBOR plus 21/ 4% and the pro rata at LIBOR plus 13/ 4%. Yarick declined to confirm pricing, but said the company was pleased with final pricing. Pricing on the deal is subject to change as it is tied to a grid based on the company's ratings.
Yarick said the company has hammered out a potential bond deal down the road with J.P. Morgan but declined to provide further details. "The best thing for us to do right now was replace the facilities. We'll decide on a bond deal later," he added. Bank of America was syndication agent and co-documentation agents included SunTrust, Bank of Nova Scotia, BNP Paribas, and Rabobank.