Rayovac plans to use $500 million term loan add-on for Tetra acquisition

By Sara Rosenberg

New York, March 17 - Rayovac Corp. plans on getting $500 million of add-on term loan debt under an accordion feature contained in its credit agreement to help fund the acquisition of Tetra Holding GmbH, company officials said in a conference call Thursday.

The term loan debt would be added on to the company's dollar- and euro-denominated term loans, officials said.

With the drawdown of the loan accordion feature and cash generation, the company anticipates being able to finance the approximately €415 million acquisition in its entirety without using revolver borrowings.

In reaction to the acquisition announcement, both Standard & Poor's and Moody's Investors Service placed Rayovac's ratings on watch negative.

S&P put Rayovac's B+ corporate credit rating, B+ senior secured bank loan rating and B- senior subordinated debt rating on CreditWatch saying that the company's capital structure, product portfolio diversity and integration risk will need to be assessed to determine the affect of the acquisition on its ratings.

Moody's put Rayovac's B1 senior secured bank loan rating and B3 senior subordinated notes rating on review for possible downgrade reflecting the potential for material debt increases, given the high purchase price, and additional complexity of integrating Tetra's global operations at the same time it is absorbing the $1.4 billion February acquisition of United Industries.

The rating review will include a comprehensive analysis of Tetra's operations, the integration strategy and the impacts of the acquisition on Rayovac's capital and corporate structures, existing integration plans, and deleveraging schedule, Moody's said.

When asked whether the rating agencies' actions were of concern to Rayovac, officials responded during the call by saying that the rating watch is not unusual and the company's belief is that a downgrade will not end up taking place.

"We spent a long time discussing this with our banks and our investment advisers because we didn't want to deal with that kind of an issue before we even bid on Tetra. Both the firms that helped us here felt strongly that given the profile of the company going forward post this deal that we should not have an issue with our rating," officials said in the call.

"[We] met with both the rating agencies last Monday to give them a heads up about the transaction but we only had enough time to give them kind of a very high level overview. We believe that the announcement that they came out with is not unusual for a company that's got this kind of debt."

Officials in the call said they expect to again meet with the ratings agencies.

"We're going to be back with these guys within a week taking them through an in-depth analysis of not only the Tetra acquisition but really laying out what this combined enterprise looks like. We delever this thing extremely quickly. We think we can convince them that the integration risk, including Tetra versus just integrating United, is really not a significant change and that we are well on our way of getting that integration done.

"These businesses, each of which have somewhat different characteristics in terms of growth, ... have one common characteristic - that all of them are strong cash flow generators. I think we can end up convincing these folks that there is absolutely no reason to downgrade our company. We have levered up several times before even when we were a significantly smaller entity and have demonstrated a great track record of doing what we say we would do in terms of successfully integrating and operating businesses and delevering very quickly.

"I personally feel very confident that once they have the full information, which they're going to get here within a week, that when they go through their committees we're going to hold our investment ratings," officials concluded in the call.

Closing of the acquisition is expected to take place by June 30.

Citigroup Global Markets Inc. served as financial adviser to Rayovac, and J.P. Morgan Securities Inc. served as financial adviser to the sellers.

Rayovac is an Atlanta-based consumer products company and a leading supplier of batteries, lawn and garden care products, specialty pet supplies and shaving and grooming products. Tetra is a Melle, Germany-based manufacturer, distributor and marketer of foods, equipment and care products for fish and reptiles, along with accessories for home aquariums and ponds.

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