Dr Pepper/Seven-up Cos. has slashed the pricing of its bank debt through a $625 million refinancing, led by Bankers Trust Co.
The new credit replaces a bank loan obtained just a year ago as part of a recapitalization of the Dallas-based maker of soft drinks. Last year's deal was also led by Bankers Trust.
Dr Pepper has impressed banks with its strong cash flow and operating performance. In the third quarter, the company reported net earnings of $23.2 million, compared with a loss of $3.1 million a year earlier.
But fundamentals alone do not explain the 150-basis-point reduction in Dr Pepper's borrowing rate, to 125 basis points over the London interbank offered rate.
The company, like many others, is taking advantage of a marked deterioration in loan pricing over the past six months or so, bankers grimly acknowledged.
Just this month, for example, Coltec Industries said it obtained a new $415 million revolving credit, replacing existing bank lines on better terms, and with more flexible covenants.
Bankers Trust is also Coltec's lead bank.
While several banking sources said the pricing of the new Dr Pepper loan was extremely aggressive for a company of Dr Pepper's credit profile, they predicted that the deal would be syndicated with ease.
A bank meeting for prospective syndicate members was held last week in Dallas.
Dr Pepper's implied senior debt rating of B-plus from Standard & Poor's Corp. is deep in junk bond territory, and there is nothing on the horizon to suggest that the company will rise to investment-grade status anytime soon.
S&P's ratings outlook is stable, meaning that the agency does not expect to raise or lower the rating in the near term.
But banks have been rewarding sub-investment-grade companies with some of the deepest price reductions seen in the loan market.
Many of the banks that participated last year's credit for Dr Pepper are expected to sign UP for the new deal.
Some Underwriters Returning
In addition to Bankers Trust, the other underwriting banks in the 1992 credit were Chase Manhattan Bank, NationsBank, Barclays Bank, Canadian Imperial Bank of Commerce, and First National Bank of Chicago.
At least some of those banks have already committed to participate as coagents on the new deal, sources said.
Bankers Trust is said to have underwritten $100 million of the deal, and prospective coagents were asked to commit $50 million each, though some may have committed more than that.
Initial Public Offering
Calls to Bankers Trust's loan syndication desk were not returned by press time Friday. A
Dr Pepper official also did not return a phone call for comment on the new credit.
Dr Pepper's 1992 bank credit originally amounted to $875 million, but part of it was repaid early this year, when the company completed an initial public offering of stock.
In August, Cadbury Schweppes PLC disclosed that it was buying Prudential Insurance Co.'s 12.2 million Dr Pepper shares, raising Cadbury's stake in the company to 25.9%.
Deal at a GlanceBorrower Dr Pepper/ Seven-Up Cos.Amount $625 millionPurpose RefinancingLead bank Bankers Trust