Doane Pet Care exploring options to reduce leverage, increase loan compliance

By Sara Rosenberg

New York, May 7 - Doane Pet Care Co. is aiming to improve its compliance with financial covenants under its credit facilities and reduce leverage in fiscal year 2002. The Brentwood, Tenn. maker of private-label dog and cat food is exploring various options to achieve this goal, including raising additional equity capital, restructuring the senior credit facility, making strategic acquisitions, selling non-strategic assets and issuing long-term debt, according to a filing with the Securities and Exchange Commission.

The senior credit facility consists of a €75.4 million term loan, a $286 million term and a $75 million revolver with a $20 million sub-limit for letters of credit. The commitments under the revolver were lowered to $60 million until certain "financial performance tests" are met, the SEC filing said. These tests were not met in 2001 and the company does not expect to meet them in 2002. At March 30, borrowings under the revolver totaled $9 million, including $2.6 million letters of credit.

In March 2002, the credit facility was amended. Interest rates were increased to Libor plus 475 basis points on all the loans until maturity in 2006 and the revolver's commitment fee was raised to 100 basis points. Previously, the euro term had an interest rate of 7.65%, the dollar term had an interest rate of 8.91% and the revolver had an interest rate of 8.66%, according to the SEC filing. In addition to the rate raise, the amendment granted lenders a lien on material operating cash accounts, increased the limit on future capital expenditures to a total of $25 million for 2002 and $7 million for the first quarter in 2003, limited the company's investing activities, restricted repayments under the sponsor facility, established a new EBIDTA covenant and allowed for the issuance of new senior subordinated notes if the proceeds are used to repay the loans.

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