RAPAPORT... Zale Corporation secured a new $665 million credit facility, which includes an amended and extended $650 million revolving credit facility and new $15 million first-in, last-out (FILO) funds. The retailer utilized increased availability from these facilities for a prepayment of $60.5 million on its senior secured term loan. In addition, Zale amended and extended its senior secured term loan with Golden Gate Capital for the remaining $80 million. The new facility and FILO mature in five years, an increase of about three years from the prior agreement and it enhanced borrowing capacity by increasing the inventory collateral base by 2.5 percent to 90 percent.
The new credit facility was led by Bank of America, the administrative agent, and Wells Fargo Bank and J.P. Morgan Securities, co-syndication agents. Peter J. Solomon Company acted as financial advisor for the company.
At the current interest rates, these transactions reduce the company's overall average borrowing cost from about 8 percent to about 4 percent, resulting in projected annual pretax savings in the fiscal year beginning August 1, 2012 of approximately $17 million. As a result of the financing transactions, overall available liquidity has improved and is expected to stand at approximately $140 million as of July 31. Zale incurred costs of approximately $13 million related to the financing transactions of which approximately $5 million will be expensed in the fourth fiscal quarter of 2012, with the remaining costs to be amortized over the five year life of the agreements.
''The benefits gained from the debt refinancing are a result of the significant operating improvements that the company has achieved over the past two years,'' said Theo Killion, Zale's chief executive. ''Going forward, our aggregate borrowing cost will be substantially lower, which will accelerate the company's return to profitability.''