M&A

A Loan, to Staple Its Corporate Express Deal

Staples arranges for $400m in short-term financing, with some proceeds to go for retiring target's debt.
Stephen TaubJuly 3, 2008

Staples Inc. has agreed to borrow up to $400 million in short-term financing from a group of financial firms. It plans to use the proceeds for working capital in connection with the $2.7 billion acquisition of Corporate Express NV, including repayment of the target’s debt.

The office-products retailer says it will provide a postacceptance period to allow Corporate Express holders not yet tendering their securities to do so. That shouldn’t be much of a problem: Staples says that so far 95.2 percent of ordinary shares, 99.7 percent of preference shares A, and 99.1 percent of bonds have been tendered.

Also, Standard & Poor’s and Fitch Ratings downgraded Staples’s credit rating by one notch, removing the ratings from CreditWatch. S&P also raised the corporate credit rating on Corporate Express to BBB from BB- (the same as Staples), and removed it from CreditWatch.

S&P says the downgrade of Staples follows the company’s heavily leveraged acquisition, which includes more than $1.5 billion in debt to be refinanced and some assumed Australian debt, as well as the fact that the deal is unconditional and committed. “The change also reflects Staples’s more aggressive financial policy,” says S&P credit analyst Mark Salierno, “and weaker credit-protection measures in the near term following the substantially debt-financed acquisition.”

S&P notes Staples has indicated that share repurchases would be suspended until credit measures are restored to levels more appropriate for the rating. “During this time, we expect that Staples would apply a substantial portion of its cash flow to debt reduction,” says Salierno, “and strengthen credit measures in the near term despite ongoing challenges in the office supply market that should persist throughout 2008.”