Office Depot Inc (NASDAQ:ODP) is contemplating whether to carry out a revision of the US $750m leveraged M&A loan according to anonymous sources.
The sources revealed that the company is considering a revision of the loan and it plans to back it with the acquisition of CompuCom for roughly $1 billion. Goldman Sachs Group Inc (NYSE:GS) is the lead underwriter on the deal and a revision of the loan is expected to shorten the repayment period and enhance the loan’s yield while also attracting lenders as revealed by the anonymous sources.
“To attract lenders into the deal, Goldman Sachs, the lead underwriter, is likely to boost the loan’s yield and shorten the repayment period, among potential other changes,” stated the anonymous sources.
Goldman Sachs is expected to push up the loan pricing to 700bp over Libor and a 1 percent floor as opposed to 500bp-525bp over Libor with a 1 percent floor. The sources also revealed that a revision of the loan could lead to a steeper discount at 96 percent of the face value compared to the discount of 98.5 percent when it was launched. This move is expected to attract buyers.
Office Depot is also thinking about a fast-tracked amortization schedule over the current 1 percent annual rate. This will make it easier for the company to keep investors in check. The revision of the loan is also expected to result in other changes to the credit deal. The sources also revealed that investors were not happy about the additional debt as well as the flexibility of taking cash out of the firm during the syndication.
Investors have also expressed concerns over the weak earnings from CompuCom and Office Depot, as well as the challenges that have fueled speculation about the possibility of a continued decline in the future. Office Depot expects its 2017 sale to be lower compared to the sales recorded in the previous year due to the tough retail environment as well as the fact that it has closed some of its retail stores.
Office Depot stock closed the latest trading session on Tuesday at $3.10 after a 1.97 percent gain compared to the value of the stock during the previous close.