Deutsche Bank last week launched syndication of a three-and-a-half-year, $417 million credit for Commonwealth Brands, America's fifth largest cigarette maker. The deal is already 75% subscribed with institutional accounts, said a banker familiar with the credit. Officials at Commonwealth declined to comment.
"The biggest issue with this deal is the mitigation of litigation issues," said the banker. Founded in 1991, the Bowling Green, Ky.-based company is not liable to the same pressures as other tobacco companies. It did not suppress research and development reports or fail to carry the warning labels, the banker explained. The company has signed a master settlement agreement with 46 states that further minimizes litigation risk, she added. Some insurance companies cannot commit because of conflict of interest, but institutions have received the credit well. The short maturity means that the payout is quick and pricing is considered attractive, she added.
Pricing will either be LIBOR plus 31/ 2% or LIBOR plus 33/ 4%, depending on ratings, which will be assigned shortly. The credit is expected to fall into the B1 or BB- region, added the banker. The loan is split between a $400 million term loan, available to institutions and banks, and a $17 million revolver.