As part of its revised recapitalization, Dr Pepper/Seven-Up Cos. picked a scaled-down version of its previous bank underwriting group to provide $875 million of new loans.

An earlier $750 million credit, underwritten by six banks in the spring, was canceled in July, when Dr Pepper abandoned an initial public offering of stock.

The decision to bypass three of its former underwriting banks in the new deal was attributed to the company's need for a quick turnaround on the loan commitments.

Rise in Interest Rates Feared

Dr Pepper wants to complete the bank deal and a related offering of notes before the November elections, apparently believing that interest rates could rise if the Democrats win the White House.

The new bank credit agreement was disclosed by the Dallas-based soft-drink maker in a regulatory filing Thursday for a proposed offering of $375 million of senior subordinated discount debentures. Proceeds from the offering, along with the new bank loans, would be used to retire high-cost junk bonds and preferred stock.

The company had planned to deleverage through a $600 million stock offering, but it fell victim to a softening in the IPO market.

While working with a smaller group of underwriting banks on the new bank deal might have saved some time, it also miffed those who got left out, sources associated with the deal acknowledged.

The Underwriters

The new credit agreement is led by Bankers Trust Co., Chase Manhattan Bank, and NationsBanks. Left out of the new underwriting group were Barclays Bank, Canadian Imperial Bank of Commerce, and First National Bank of Chicago.

All three are being courted to join the new deal in lesser, but still significant roles. If all three refuse, it could send a bad signal to the bank loan market, creating a potential syndication problem.

As it stands now, though, the new bank deal appears likely to get a good response in the loan market, despite the lack of new equity in the recapitalization. One banker who participated in the aborted bank deal last spring said Friday that he would probably want to join the new deal.

"We're willing to accept higher financial risk" for companies like Dr Pepper, which sell well-known consumer products.

Others Could Follow

Depending on the success of the Dr Pepper deal, other former IPO candidates could come forward with similarly revised recapitalizations, bankers predicted.

Despite the lack of new equity, Dr Pepper's cash interest coverage ratio will be essentially the same as it would have been in the original recapitalization. That's because the notes being offered don't begin to pay cash interest for five years. The company plans to retire the notes with equity before that happens.

Still, without the new equity, the new loans carry more risk for lenders, and the bank deal has been repriced to reflect that.

A $625 million tranche of term debt and a $100 million revolver carry a borrowing rate of 287.5 basis points over the London interbank offered rate. A separate $150 million tranche of term debt is priced at 350 basis points over Libor. The earlier bank deal was priced at 275 basis points over Libor.

In addition, the three underwriting banks will receive commitment fees totaling $30.6 million.

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