Osteotech completes $16.5 million sale and leaseback transaction

By Kimberly N. Alleyne

Stroudsburg, Pa., Aug. 9 - Osteotech, Inc. announced Tuesday that it has completed a $16.5 million sale and leaseback transaction on its building at Eatontown, N.J., used for processing allograft tissue.

The company has used part of the proceeds to pay off its $11 million of outstanding long-term debt and will use the remainder for general working capital purposes.

"Completion of this transaction provides the company greater flexibility in employing its cash resources toward achieving its strategic goals," said Michael J. Jeffries, executive vice president and chief financial officer, in a news release.

"We will no longer have covenants from debt that could potentially restrict the use of funds and, with the incremental funds realized from the transaction, we will have adequate resources available to fund the near-term growth plans of the company."

"Additionally, we will receive an annual cash flow savings of about $1 million since the annual rent payments under the new lease will be less than the combined interest and principal payments on the long-term debt being paid off simultaneously with the closing of the sale of the property."

The company, headquartered in Eatontown, has entered into a 20-year triple net lease for the property with two five-year options to renew. The company will pay $2.3 million of rent for each of the first seven years, $1.5 million for years eight through 12, and for years 13 through 20, the lesser of fair market value or 105% of the previous five-year rent level, but in no event less than the rent paid in the previous five-year period.

Further, the company will realize a pre-tax profit of $3.6 million on the transaction, which will be amortized over the initial life of the lease.

Osteotech is a provider of human bone and bone connective tissue for transplantation.

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