Constellation Brands $1.6 billion loan well liked due to company's history of debt repayment

By Sara Rosenberg

New York, Feb. 27 - Constellation Brands Inc.'s newly launched $1.6 billion credit facility is expected to get done even though the institutional tranche lacks the incentive of an upfront fee and the coupon falls below the 300 basis points area. Attracting investors to the deal is the company's favorable track record of being able to pay down debt relatively fast.

"They are going to get that deal done," said one fund manager who participated in Thursday's bank meeting. "It's a great rating, Ba1. And after every acquisition they make they pay down debt pretty quickly. They have a history of being able to get this stuff done. It's all a function of free cash flow they generate from their business."

The credit facility is comprised of an $800 million 51/2-year term loan B with an interest rate of Libor plus 275 basis points, a $400 million five-year term loan A with an interest rate of Libor plus 225 basis points and a $400 million five-year revolver with an interest rate of Libor plus 225 basis points.

"For a Ba1, I guess that spread's kind of decent," the fund manager said. "For things wee look at, you don't like to see anything below 300."

In addition to the credit facility, there is a $450 million bridge loan that is available to the company. "The bridge loan will be put into place until they can issue $450 million of new equity," the fund manager explained, adding that despite the current rocky state of the equity market, participants in the meeting did not sound worried about the company's ability to issue the new equity and generate the required proceeds.

JPMorgan, Salomon Smith Barney and UBS Warburg are the lead banks on the deal.

Proceeds from the loan will be used to help fund the acquisition of BRL Hardy Ltd. for approximately $1.4 billion. As part of the acquisition, Constellation has offered shareholders of BRL Hardy A$10.50 per share, valuing BRL Hardy's total shares at approximately $1.1 billion and will assume around $325 million in net debt. BRL Hardy shareholders will be offered a choice of all cash, all stock or a combination. At closing, assuming that BRL Hardy shareholders choose to take the maximum of 15 million Constellation shares, pro forma last 12 months net debt/EBITDA will be approximately 4.0 times and pro forma EBITDA interest coverage will be approximately 3.7 times.

Constellation is a Fairport, N.Y. producer and marketer of alcoholic beverages. BRL Hardy is an Australian wine producer.

Also launched on Thursday was Gaylord Entertainment Co.'s $225 million credit facility, consisting of a $25 million three-year revolver and a $200 million three-year term loan. Deutsche Bank, Bank of America and CIBC are the lead banks on the deal.

Proceeds will be used by the Nashville, Tenn. diversified entertainment and communications company to repay the existing term loan and complete construction of Gaylord Opryland Texas Resort & Convention Center.

In the secondary, Central Parking Corp.'s new credit facility was allocated and broke for trading on Thursday at par 3/8, a trader said.

The facility underwent some scrutiny over the past two weeks as market participants were unsure whether the deal would get done due to news that the company's chief financial officer resigned and that earnings guidance is not being provided for the second quarter or the balance of fiscal 2003.

"The deal was tweaked and got done," the trader explained, adding that details of what has been changed were unknown to him.

Bank of America is the lead bank on the Nashville parking facility operator's new credit facility. Calls to the syndicate to obtain further information on the restructured credit facility were not immediately returned.

In follow-up news, DirecTV Holdings LLC restructured its credit facility on Wednesday, increasing the size of the term loan B and reducing the size of the term loan A, according to a syndicate source. The overall credit facility currently totals $1.675 billion as opposed to the originally announced size of $1.55 billion.

"It was a complete blowout on the B loan. We had way over $1 billion," one syndicate source said, explaining the change in structure. The deal received a lot of attention prior to it actually hitting the market with the B loan reported as being close to filled. On the actual launch date the B loan attracted a billion plus in demand.

Reasons for high investor interest include the attractive sector in which DirecTV operates, the company's attractive business model, the company's ability to generate steady cash flow and speculation that the company may be bought by an investment-grade company.

The facility now consists of a $250 million five-year revolver with an interest rate of Libor plus 350 basis points, a $375 million five-year term loan A, downsized from $500 million, with an interest rate of Libor plus 350 basis points and a $1.05 billion seven-year term loan B, upsized from $800 million, with an interest rate of Libor plus 375 basis points.

Deutsche Bank, Bank of America, Salomon Smith Barney, Credit Suisse First Boston and Goldman Sachs are the lead banks on the deal.

Security for the loan is substantially all of DirecTV's assets.

DirecTV will use the proceeds from the sale of $1.4 billion senior unsecured notes due 2013 and the term loans to repay outstanding indebtedness under parent Hughes' existing credit facilities, to fund Hughes' business plan through projected cash flow breakeven and for Hughes' other corporate purposes, the release said. Hughes' existing $1.8 billion senior secured credit facilities will terminate upon the repayment.

DirecTV is an El Segundo, Calif. digital satellite television service provider.

The acquisition of CSX Lines LLC by The Carlyle Group has been completed, according to a news release. In conjunction with this acquisition, CSX, which is now named Horizon Lines LLC, obtained a new $200 million credit facility consisting of a $175 million six-year term loan B with an interest rate of Libor plus 400 basis points and a $25 million five-year revolver with an interest rate of Libor plus 350 basis points.

ABN Amro and UBS Warburg were joint lead arrangers on the Charlotte, N.C. ocean carrier's bank deal.

"This is an excellent transaction for CSX, its employees and shareholders. The completion of this conveyance allows us to further concentrate the company's efforts on our core-rail business while strengthening the balance sheet. At the same time, we are pleased to have a continuing interest in this well- managed company and expect it will continue to produce solid financial results," said Michael J. Ward, CSX chairman and chief executive officer, in the release.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.