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BJ's launches $2.1 billion loan for refinancing, dividend recap

Shoppers leave a BJ's store in Alexandria Virginia August 20, 2008. REUTERS/Kevin Lamarque
Shoppers leave a BJ's store in Alexandria Virginia August 20, 2008. REUTERS/Kevin Lamarque

By Natalie Wright and Michelle Sierra

NEW YORK (Reuters) - Warehouse retailer BJ's Wholesale Club is tapping the wide open credit markets for the second time in slightly over 12 months to finance a distribution to its shareholders, sources told Thomson Reuters LPC.

The company is currently in market with a $2.1 billion credit facility that will replace and increase an existing $1.625 billion credit and back a $450 million dividend recapitalization. Deutsche Bank is leading the transaction. Citigroup, Barclays, Jefferies and Morgan Stanley are also lenders in the deal.

Deutsche Bank declined to comment. BJ's did not return a call for comment by press time.

The $450 million dividend comes on the heels of a $643 million distribution the company offered to shareholders in September 2012. It also follows recent debt-financed dividends that companies such as Arby's and Pacific Architects & Engineers have used to funnel money to shareholders in recent days given the limited opportunities to monetize investments that result from a sluggish mergers and acquisitions market.

"The sponsors are finding a way to extract equity," said Charles O'Shea, vice president and senior analyst at Moody's Investors Service. "They're taking advantage of the low interest rate environment where investors are looking for yield."

On the dividend recap, Moody's downgraded BJ's corporate credit ratings to B3 from B2. Moody's assigned a B3 to BJ's new first-lien term loan, and a Caa2 to the company's new second-lien term loan.

The Standard & Poor's issuer credit rating is B-. First-lien ratings are B- and second-lien ratings are CCC.

DIVIDEND DEAL

The company plans two tack-on loans to an existing $1.625 billion credit that it entered in September 2012 to back the first dividend recapitalization. The facilities included a $1.3 billion first-lien loan and a $325 million second-lien loan.

A $150 million first-lien tack-on loan will increase the existing first-lien to $1.45 billion. A $325 million second-lien tack-on loan will double the existing second-lien term loan to $650 million.

The new $1.45 billion, six-year first-lien term loan is guided at LIB+375-400, with a 1 percent Libor floor, at 99.5. It is expected to carry 101 soft call protection for six months.

Price talk on the $650 million, 6.5-year second-lien term loan is LIB+775-800, with a 1 percent Libor floor, at 99. Call protection on the second-lien term loan is set at 103, 102, 101. The new term loans are expected to be covenant-lite.

The first-lien term loan will mature September 26, 2019, and the second-lien is set to mature March 31, 2020. This is in line with the maturity dates of the $1.625 billion credit. Commitments are due November 8.

In February, BJ's repriced its existing $1.3 billion first-lien term at a spread of LIB+325, with a 1 percent Libor floor, at par value. The $325 million second-lien term loan priced in September 2012 at a spread of LIB+850, with a 1.25 percent Libor floor, at 99.

Headquartered in Westborough, MA, BJ's Wholesale Club operates membership warehouse clubs in the Eastern United States, with 200 Clubs in 15 states from Maine to Florida.

The company announced its acquisition by private equity firms Leonard Green & Partners and CVC Capital Partners in 2011.

(Corrects Moody's new first-lien rating to B3 from Caa1)

(Editing By Jon Methven)

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