Palm $440 million credit facility may see less favorable terms; alternative financing being evaluated

By Sara Rosenberg

New York, Aug. 10 - Palm Inc.'s proposed $440 million credit facility (Ba3/B+) may need to carry higher pricing than originally planned, and prepayment provisions may need to be changed being that market conditions have worsened since the commitment letter for the financing was signed in June, according to a DEFM14A filed with the Securities and Exchange Commission Friday.

The credit facility is part of a proposed recapitalization, under which Elevation Partners will invest $325 million in Palm through the purchase of a new series of convertible preferred stock with a conversion price of $8.50 per share.

As a result of these poor loan market conditions, the company is evaluating alternative financing arrangements.

Palm warned that financing may be on terms that are less favorable than contemplated by the commitment letter, and therefore may not constitute an alternative financing, in which case, in order to move forward, Elevation would have to agree to the new plans.

"We cannot assure you that we will be able to obtain such alternative financing on terms acceptable to us and Elevation, or at all. If we are unable to obtain alternative financing on acceptable terms, we would seek to move forward with the financing under the commitment letter," the filing said.

"If we are unable to obtain the debt financing contemplated by the commitment letter or an alternative financing on terms that are no less favorable in any material respect to us than the financing contemplated by the commitment letter, neither we nor Elevation will be required to consummate the transaction," the filing added.

As originally committed, the $440 million credit facility consists of a $40 million five-year revolver and a $400 million 61/2-year covenant-light term loan.

Pricing on the term loan was estimated by the company in June to be around Libor plus 225 to 275 basis points, depending on ratings and market conditions.

JPMorgan and Morgan Stanley are the joint bookrunners on the deal.

The net debt to EBITDA ratio would be 0.9 times.

As part of the recapitalization, shareholders would receive a $9.00 per share cash distribution that will be funded by the term loan, existing cash and the Elevation investment. The amount of total proceeds to be distributed to shareholders is estimated to be about $940 million.

Upon completion of the transaction, Elevation would own about 25% of Palm's outstanding common stock on an as-converted and diluted basis.

The recapitalization is subject to shareholder approval, customary regulatory approvals, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, and other customary closing conditions.

A stockholder meeting to vote on the transaction is set for Sept. 12.

Palm is a Sunnyvale, Calif., mobile computing devices company.

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