Ralphs Supermarkets Inc. will have to pay a higher interest rate on a new $470 million bank loan, following the cancellation last week of a proposed stock offering.

The bank financing, led by Bankers Trust Co., was conditioned on Ralphs' ability to raise at least $70 million through an initial public offering of stock. Ralphs pulled the offering last Tuesday, citing weak market conditions, but said it wanted to proceed with other aspects of a broad recapitalization.

Without the infusion of new equity, Ralphs' interest coverage ratio will be lower than was anticipated when the pricing of the new bank loans was originally set.

A Rise of 25 Basis Points

Also, there will be less junior capital - equity plus subordinated debt - to serve as a cushion beneath the senior bank loans. As a result, the borrowing rate has been ratcheted up to 275 basis points over the London interbank offered rate, an increase of 25 basis points. The fees for the co-agents also go up 25 basis points.

The new bank loans, along with proceeds from a $300 million note offering, will be used to refinance $273 million of existing bank debt, and to repurchase the company's 14% subordinated debentures. Ralphs is still saddled with high-cost debt stemming from a 1988 leveraged buyout of the Los Angeles grocery chain by now-defunct Campeau Corp.

Unlike some other failed stock offerings, including that of Dr Pepper/Seven-Up Cos., the Ralphs offering represented a fairly small portion of the company's recapitalization.

Dr Pepper's entire recapitalization, including a new $750 million bank loan, had to be scrubbed after the company pulled a $600 million stock offering. Bankers Trust also was lead bank on the canceled Dr Pepper deal.

Co-Agents to Decide

As of midday Friday, at least one of the co-agents of the Ralphs bank credit had agreed to the terms of the recast deal. The others were expected to decide by the end of the day.

The co-agents are: Chase Manhattan Bank, Long Term Credit Bank, Pilgrim Prime Rate Trust, and Nippon Credit Bank. Bank of America also helped underwrite the loan as lead manager.

New term sheets will be distributed later to banks that participated in the general syndicate.

Apart from the pricing, there is no change in the size of the credit, or the amortization schedule.

The bank financing consists of a $350 million term loan and a $120 million revolver.

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