EGL Holding plans $780 million loan, $660 million bonds for Select Medical LBO

By Sara Rosenberg

New York, Oct. 21 - EGL Holding Corp., a new company formed by an investment group led by Welsh, Carson, Anderson & Stowe, plans to get a new $780 million senior secured credit facility and to issue $660 million of senior subordinated notes to help fund its $2.3 billion acquisition of Select Medical Corp., according to a commitment letter filed with the Securities and Exchange Commission.

J.P. Morgan Securities Inc., Wachovia Capital Markets LLC and Merrill Lynch are joint arrangers on the credit facility, with JPMorgan and Wachovia acting as joint lead arrangers and joint bookrunners. JPMorgan Chase Bank is administrative agent and collateral agent, Wachovia Bank is the syndication agent and Merrill Lynch Capital Corp. is the documentation agent.

The facility consists of a $480 million seven-year term loan B with an interest rate of Libor plus 250 basis points and a $300 million six-year revolving credit facility with an interest rate of Libor plus 250 basis points. The rate is subject to stepdowns based on the company's ratio of total debt to EBITDA.

The revolver has a commitment fee of 50 basis points that can step down to 37.5 basis points based on total debt to EBITDA.

EGL can also get up to $100 million in incremental revolver and/or incremental term loan debt at any point during the term of the facilities, the commitment letter said.

Amortization on the term loan B is 1% for the first six years, with the rest due in four quarterly installments during the seventh year.

Financial covenants contained in the credit agreement include a maximum ratio of total debt to EBITDA, a minimum ratio of EBITDA to cash interest expense and maximum capital expenditures.

In case EGL does not successfully sell bonds prior to closing of the acquisition, the company has received a commitment for a $660 million one-year senior subordinated bridge facility that will carry an initial interest rate at the higher of 8.5% or Libor plus 650 basis points. After the first three months, and every three months thereafter, the rate will go up by 50 basis points with a cap at 12%.

Merrill Lynch, J.P. Morgan Securities Inc. and Wachovia are the joint lead arrangers and joint bookrunners on the bridge loan, with Merrill also acting as administrative agent.

Proceeds from the term loan, in combination with up to $200 million in revolver borrowings, equity contributions and senior subordinated notes and/or bridge loan proceeds, will be used to pay transaction costs, to repay the existing credit facility, to repurchase existing subordinated notes tendered and to pay the merger consideration, the commitment letter said.

Furthermore, Welsh, Carson, Anderson & Stowe have committed to purchase $150 million of 10-year senior subordinated notes from EGL with a cash interest rate of 10% and a paid-in-kind interest rate of 12%. Proceeds from these notes will also be used to help fund the acquisition.

The revolver will be available for working capital and general corporate purposes.

Under the terms of the merger agreement, each share of Select common stock, other than some shares held by the stockholders participating in the buying group, will be converted into the right to receive $18 per share in cash.

Select Medical will commence cash tender offers to purchase all of its outstanding 9½% senior subordinated notes due 2009 and all of its 7½% senior subordinated notes due 2013 and will also solicit consents from these noteholders.

Closing of the acquisition, which is targeted for the first quarter of 2005, is subject to various conditions, including financing, closing of the tender offers and consent solicitations, approval from a majority of Select's stockholders and Hart-Scott-Rodino.

Banc of America Securities LLC acted as financial adviser to the special committee that recommended the deal to the board of directors, which unanimously approved the transaction.

Select Medical is a Mechanicsburg, Pa., operator of specialty hospitals.

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