Capital Markets

Tyson, Macy’s Negotiate Loan Changes

The two household-name companies get more flexible debt arrangements with their banks.
Stephen TaubDecember 17, 2008

The recession and the credit crunch are forcing some companies to renegotiate terms on their credit agreements to make sure that they remain solvent.

For example, Tyson Foods has amended the five-year revolving credit agreement it has with a number of banks. The revised arrangement requires the chicken and meat processor and certain of its subsidiaries to pledge “substantially all of their assets,” as collateral, according to a regulatory filing issued. Previously, only certain were pledged under the revolver.

A hefty piece of the assets to be pledged by Tyson Fresh Meats, a subsidiary, will also be pledged on a second priority basis to secure TFM’s and the company’s obligations under TFM’s outstanding 7.125 percent notes due 2026 and its 7.95 percent notes due 2010.

At the same time, the threshold for the company’s leverage ratio (debt to earnings before interest, taxes, depreciation, and amortization) will rise to 4.50 times for the first and second quarters of fiscal 2009, 4.25 times for the third quarter of fiscal 2009, and 3.50 times thereafter. Tyson will also pay a one-time amendment fee of $5 million to the lenders.

Meanwhile, Macy’s, Inc. said it amended its existing bank credit agreement, led by Bank of America and J.P. Morgan. The size of the company’s credit facility–$2 billion–and its maturity date–Aug. 31, 2012–remain unchanged, however.

Under the amendment, a leverage covenant moves from debt-to-capitalization to debt-to-EBITDA, which Macy’s describes as “a more market-based approach” that eliminates from the calculation any potential future non-cash goodwill or asset-impairment charges.

In addition, the interest coverage ratio was reduced to 3.0 times versus the current 3.25 times through Oct. 30, 2010, when it then reverts to 3.25.

In return for the covenant changes, fees, pricing, and credit protection were increased. The agreement will become effective on Jan. 5, 2009.

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