Medco $1.15 billion credit facility to launch next week

By Sara Rosenberg

New York, May 29 - Medco Health Solutions Inc. is currently looking to hold a bank meeting next week for a new $1.15 billion senior secured credit facility, according to a syndicate source. JPMorgan, Citigroup and Goldman Sachs are the lead banks on the deal.

The facility is expected to consist of a $250 million five-year term loan A with an interest rate of Libor plus 175 to 200 basis points, a $250 million five-year revolver with an interest rate of Libor plus 175 to 200 basis points and a $650 million eight-year term loan B with an interest rate of Libor plus 225 to 250 basis points, according to a filing with the Securities and Exchange Commission.

"However, it is possible that, prior to closing, we and the lenders will agree to reallocate amounts between the eight-year and the five-year term loan facilities without increasing the total size of the borrowings under our new senior secured credit facility," the filing said.

Security will be substantially all assets, other than the company's pharmaceutical manufacturer accounts receivable, including a pledge of the capital stock of the company's subsidiaries.

Amortization on the term loan A will begin on Sept. 30, 2003 and the company will repay principal on a quarterly basis of 10% in the first year, 15% in the second year, 20% in the third year, 25% in the fourth year and 30% in the fifth year.

Amortization on the term loan B will also begin on Sept. 30, 2003 and principal will be repaid at a rate of 0.25% each quarter for the first seven years, with the remaining 93% due in equal quarterly installments during the final year.

Under the agreement the company must use 100% of the net cash proceeds of all asset sales or other dispositions of property to repay bank debt, subject to the option to reinvest in the business within 12 months of the receipt of such proceeds. Furthermore, 50% of annual excess cash flow and 100% of the net cash proceeds of issuances of debt obligations must go towards bank debt repayment as well.

Medco is obtaining this facility as part of its spin-off from Merck & Co. Inc. The spin-off is subject to a number of conditions, including the receipt of a favorable ruling from the Internal Revenue Service, the receipt of required regulatory approvals, final action by Merck to set the record date, distribution date, and distribution ratio for the spin-off, the effectiveness of the registration statement and payment by Medco Health to Merck of dividends aggregating $2 billion.

Proceeds from the term loans, combined with proceeds from a $500 million note offering and a $500 million accounts receivable financing facility, will be used to pay a portion of the cash dividend to Merck.

The revolver is expected to be undrawn at distribution and will be used for working capital and general corporate purposes.

Medco is a Franklin Lakes, N.J. pharmacy benefits management company.

© 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.