In one of the quarter's most closely watched deals, J.P. Morgan & Co. is struggling with a $545 million highly leveraged loan connected to Bain Capital Inc.'s buyout of Domino's Inc.

The credit, which would restructure Domino's debt, is now entering its second month of sales efforts. A key sticking point, according to investors, is the nature of Domino's pizza-delivery business.

Investors say Bain and Morgan have not clearly defined Domino's unique business niche, so it is hard to compare the chain with other retailers, food service providers, or restaurants. That, they say, is making it difficult for banks and other investors to do due diligence on the loan.

Bain, a Boston-based private equity investment firm, announced Sept. 27 that it would buy a 90% stake in Domino's for $1 billion. Domino's, based in Ann Arbor, Mich., had pretax profits of $61.5 million in 1997. Though Bain has a long track record of successfully raising money in the loan market, it is facing several hurdles in the Domino's deal, including a cool forecast for the pizza-delivery business. Industry sales have been flat for more than two years, and Domino's market share has dropped from 52% in 1989 to 30% this year.

Another problem is a credit report issued by Standard & Poor's on Nov. 30 that gave Domino's a "negative outlook" based in part on significant debt levels and on the coming resignation of owner and chief executive officer Tom Monaghan, which was part of the Bain sale deal.

The ratings agency also said the new and existing debt agreements, except for an existing $100 million credit line, allow Domino's little "flexibility." Standard & Poor's said Domino's "dominant market position could be easily challenged by a competitor."

Should Domino's suffer declining sales and enter default, S&P said it is doubtful the company's value "will be sufficient to cover the entire loan facility."

Lead bankers at J.P. Morgan, Bank One Corp. and Comerica Bank declined to comment on the deal. But bankers familiar with the loan acknowledge that investors may be confused about the nature of Domino's business and concerned that no CEO has been named.

"It's a low-overhead enterprise that doesn't have the capital expenditure you find with restaurants," a banker said. "It's a cash, high- margin business." A CEO will be named in January, the banker said.

These bankers also pointed out that since Nov. 17, when the deal was launched, two parts of the four-part loan have already nearly sold out. Commitments are due Dec. 9.

The interest in the Bain-Domino's deal goes beyond the individual credit because of Bain's stellar reputation. Bain has invested 33% equity for Domino's debt restructuring. If a leveraged loan for Bain runs into trouble, some bankers may raise prices for other leveraged loans-or decline credit to some borrowers.

The four-part Domino's deal includes a $175 million term loan maturing in 2004, a $135 million term loan due in 2006, a $135 million term loan due in 2007, and a $100 million revolving credit facility due in 2004.The loan is priced between 300 and 375 basis points plus the London interbank offered rate.

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