In its second lead-managed junk bond mandate, Societe Generale Securities Corp. last week wrapped up financing for Friendly's Ice Cream Corp.
The restaurant and ice cream chain, based in Wilbrahim, Mass., on Friday issued $200 million worth of high-yield bonds and $80 million of stock in an initial public offering.
In addition to leading the bond deal, Societe Generale en fully underwrote a $160 million bank loan for the company. Its IPO was led by NationsBanc Montgomery Securities Inc.
Societe Generale won the mandate because it "was able to come up front and underwrite the bank loan with a commitment letter, whether they syndicate it or not, and act as lead underwriters on the senior notes," said George Roller, Friendly's chief financial officer.
"At that point, we felt very comfortable that although SocGen was not a big player in high-yield paper, they certainly had talented people who had done the work at other companies, and they all came with excellent credentials," Mr. Roller said.
Friendly's had been seeking for three years to refinance a $360 million loan with BankBoston Corp. The restaurant company filed to sell junk bonds twice before but shelved its plans when the market got stormy.
On Friday, Societe Generale priced Friendly's senior notes to yield 10.5% at 465 basis points over Treasuries. Donaldson, Lufkin & Jenrette and NationsBanc Montgomery co-managed the deal.
Market participants said that despite the gloomy outlook for the restaurant business, demand for Friendly's bonds was strong.
"This time around, the equity cushion afforded them a much better market," said one high-yield analyst.
Just weeks after Friendly's announced plans to issue bonds, the equity and high-yield markets were rocked by losses in the Asian stock markets and money flowed out of high-yield funds for the first time since April.
The IPO was priced at $18 per share, less than the $19 to $21 initially projected. It dropped slightly to $17.375 in its first day of trading.
Ryan Jacob, research director of IPO Value Monitor, said Friendly's deal was affected by "general market conditions in part." But also affecting the deal was the company's highly leveraged capital structure.
"Companies like this can go either way," Mr. Jacob said. "If they are successful renovating, it results in increasing the revenue base, and that will fall to the bottom line more quickly. But if things don't work out as planned, interest coverage can become thin quickly."
Mr. Roller, however, praised his underwriters.
"Its a very difficult marketplace, with the number of transactions coming to market, and all of the changes going on," Mr. Roller said. "I think that over time, as people know us, the stock will trade appropriately."
