Less than two months after emerging from bankruptcy proceedings, Revco D.S. appears close to lining up about $300 million of new bank loans to refinance higher-cost debt.
The Twinsburg, Ohio-based drugstore chain solicited proposals from about half a dozen banks, and bids are expected to be submitted by today, said a banking source familiar with the situation.
Gregory Raven, Revco's chief financial officer, didn't return repeated phone calls for comment.
Rate Could Be Almost Halved
Revco is paying a blended rate of over 11% on three separate debt issues, totaling $435 million. By replacing most of that debt with bank loans, Revco could cut its interest rate nearly in half.
The borrowing rate on the new bank loans probably would be around 2.5 to 2.75 percentage points over the London interbank offered rate, currently around 3.5%.
Though Revco's debt costs would be reduced substantially, the expected spread over Libor on the bank loans is higher than what other borrowers of similar credit risk would pay, said the banking source familiar with Revco's plans.
A Dubious Distinction
Revco is penalized because of its notoriety as the firs big 1980s-era LBO to fail.
Taken private in 1986, the company filed for protection from its creditors under Chapter 11 of the Federal Bankruptcy Code on July 28, 1988. It emerged from Chapter 11 nearly four years later, on June 1,1992.
Most of Revco's post-bankruptcy debt consists of $306.2 million of 11% notes held by the company's former bank creditors. There are two other classes of debt, paying rates of 11.5% and 11.625%.
Revco's original buyout loan was led by Wells Fargo & Co. and Marine Midland Bank. Both banks are believed to have sold their loan holding before Revco came out of bankruptcy proceedings.
In addition to new bank loans, it is expected that Revco would use available cash and fresh equity financing to eliminate all of its post-bankruptcy debt.
Anticipating a quick refinancing, Revco agreed to pay a higher interest rate on the notes in return for avoiding any call premiums or prepayment penalties.
Equity Financing Options
The nature of any new equity financing hasn't been determined but could take the form of a stock offering, a rights offering to existing shareholders, or a private placement, said the banking source.
Revco's biggest shareholder is Zell-Chilmark Fund LP, which backed management's reorganization plan.
Revco is expected to select the winning bid on the new bank loans next week.
While the identities of the potential bidders couldn't be learned, Wells and Marine Midland are not among them.
