The Pep Boys, Manny, Moe & Jack has landed a $90 million credit from GMAC Business Credit Equipment Finance Division in order to repurchase zero coupon convertible liquid yield option notes (LYON). George Babich, executive v.p. and cfo for the Philadelphia-based automotive aftermarket chain, said that up to $110 million in LYONs taken out in 1996 can be put back to the company on the Sept. 20 put date.
A credit facility is the best structure to fit what the company is trying to accomplish, said Babich. "We did not want to over-collateralize," he noted, adding, "In today's market and with a BB- credit rating from Standard & Poor's, it would have meant higher spreads or increased collateral coverage to have issued notes." The Pep Boys also has a $365 million, four-year revolving line of credit with Congress Financial. Three years are left to run on this line, Babich said.
GMAC beat out other firms to lead the new credit by working with The Pep Boys to best meet the company's needs in a very competitive way, commented Babich. He declined to name the other institutions that bid for the business or are on the facility. Secured by store equipment and real estate, the credit consists of two $45 million lines, one a two-year and the other a five-year. The two-year is priced at LIBOR plus 365 basis points and the five-year, LIBOR plus 395 basis points.
The auto aftercare market is counter cyclical, said Babich, commenting on the economic climate. "As people cut back on new cars, maintenance on existing cars increases. The cars that require the most care when they visit our centers, are six to eight years old. The mid 1990s were record years for new car sales, and those vehicles are now in our marketplace," he commented.