Landry's buyout financing in trouble; JDA launch well attended; Cash, LCDX fall progresses

By Sara Rosenberg

New York, Oct. 7 - Landry's Restaurants Inc. disclosed on Tuesday that the proposed credit facility for its buyout may not come through at the current acquisition price and that the buyer is looking to negotiate a reduction in that price.

In more new deal happenings, JDA Software Group Inc. launched its credit facility to investors during the session and talk is that the launch went well as attendance was high.

Over in the secondary market, cash and LCDX 10 continued to slide on more of the same issues: lack of buyers and grim economic outlook.

Landry's Restaurants' buyout deal has hit a snag, as the buyer is looking to negotiate a lower purchase price, saying that the debt financing required for the transaction is in jeopardy at the current $21 per share price, according to a news release.

As was previously reported, Landry's has received a commitment from Wells Fargo Foothill and Jefferies for a $300 million senior secured credit facility, consisting of a $50 million five-year revolver and a $250 million five-year term loan A.

According to filings with the Securities and Exchange Commission, pricing on the revolver and the term loan A is expected to be Libor plus 400 basis points, with a 3.25% Libor floor, and the revolver has a 50 bps commitment fee.

Originally, Landry's had scheduled a bank meeting for Sept. 4 to launch the facility, but that ended up being delayed until Sept. 18. And then, the Sept. 18 bank meeting was pushed off primarily because of Hurricane Ike. Currently, there is no expected timing available on the deal.

The buyer, Fertitta Holdings, told Landry's that negatively impacting the financing is the closure of the company's Kemah and Galveston properties as a result of the hurricane, the instability in the credit markets, and the deterioration in the casual dining and gaming industries, the release said.

The first restaurant on the Kemah Boardwalk is expected to open in a few weeks, and the project should be fully functioning prior to spring break of 2009. Three of the seven Galveston area restaurants are also closed and not expected to open until 2009. All other Houston area restaurants previously closed are now open.

Fertitta is currently in talks with the lead banks on the debt financing for a transaction at a substantially reduced price. New terms have not yet been agreed upon "and there is no assurance that a transaction at a reduced price will even be reached," the release added.

In addition to the credit facility, the debt financing includes $315 million of senior secured notes, which are backed by a commitment for a $315 million one-year senior secured increasing rate bridge loan.

Fertitta is a newly formed entity wholly owned by the company's chairman, president, chief executive officer and original founder, Tilman J. Fertitta, who beneficially owns about 39% of the company's outstanding common shares.

Landry's is a Houston-based restaurant, hospitality and entertainment company.

JDA launch goes well

JDA Software held a bank meeting on Tuesday to launch its proposed $450 million five-year senior secured credit facility (B1/BB+), and that meeting was "well attended," according to a fund manager.

"This credit has a following. There is an existing lenders base," the fund manager remarked.

As was previously reported, the facility consists of a $25 million revolver and a $425 million term loan, with both tranches talked at Libor plus 575 bps with a 3.25% Libor floor.

The term loan is being offered at an original issue discount of 97 and carries 101 call protection against voluntary prepayments for one year.

By comparison, the commitment letter, which was filed with the SEC in August, had the revolver and term loan pricing outlined as Libor plus 475 bps. The Libor floor, original issue discount and call protection listed in the commitment letter are all the same as the official talk.

Amortization on the term loan is 7.5% in years one and two, 10% in year three, 15% in year four and 60% in year five.

Financial covenants under the facility include a maximum ratio of total debt to EBITDA, a minimum interest coverage ratio and maximum capital expenditures.

Credit Suisse and Wachovia are the joint lead arrangers and joint bookrunners on the deal, with Credit Suisse the agent and Wachovia the syndication agent. Recently, Wells Fargo Foothill joined the syndicate as well.

Also, recently the credit facility commitment was amended to reduce the adjusted pro forma EBITDA condition to financing to $130 million from $136.3 million in order to provide additional flexibility and deal certainty.

Proceeds from the facility, together with cash on hand, will be used to fund the roughly $346 million cash acquisition of i2 Technologies Inc. and related transaction expenses, to repay i2's convertible debt, to refinance JDA's existing debt and revolver, and to provide for the combined companies' ongoing working capital and general corporate needs.

The revolver is expected to be undrawn at close.

Under the terms of the acquisition, i2's common stock will be converted into the right to receive $14.86 per share in cash and each issued and outstanding share of i2's series B convertible preferred stock will be converted into the right to receive roughly $1,095 per share in cash plus all accrued and unpaid dividends.

Included in the estimated transaction costs is the original issue discount on the term loan, investment banker fees, legal costs and change-in-control payments.

Pro forma combined LTM revenue at June 30 is about $635 million and pro forma combined LTM adjusted EBITDA at June 30 is about $150 million.

With synergies, gross debt to EBITDA will be 2.8 times, net debt to EBITDA will be 2.3 times and EBITDA to interest expense will be 3.9 times.

The transaction is expected to close in the fourth quarter, subject to completion of financing, i2 stockholder approval, the amendment of i2's convertible note indenture, expiration or termination of the applicable Hart-Scott-Rodino waiting periods and regulatory and other customary conditions. Successful syndication of the debt is not a condition of the financing.

In September, the companies announced that they received early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

A special meeting for i2 stockholders to vote on the transaction is scheduled to take place on Nov. 6.

JDA is a Scottsdale, Ariz.-based provider of supply and demand chain requirement software products. i2 Technologies is a Dallas-based provider of supply chain management products.

Cash, LCDX drop

Switching to trading news, the cash market in general and LCDX 10 both experienced losses on the day as buyers continue to be hard to find and the economy is in turmoil, according to traders.

The overall cash market was described as being down around one to two points on the day.

"Market's just been pretty weak. There's been two-way flow, but it's hard to put a gauge on what's going on," one trader remarked.

"Probably the quietest day I've seen in a while. Decent amount of trading, but slower than it has been," a second trader remarked.

Meanwhile, LCDX 10 ended the day around 89.50 bid, 89.80 offered, down from Monday's levels of 90 bid, 90.30 offered.

"Very volatile with stocks," the second trader added about the index.

Nasdaq closed down 108 points, or 5.8%, Dow Jones Industrial Average closed down 508.39 points, or 5.11%, S&P 500 closed down 60.66 points, or 5.74%, and NYSE closed down 366.53 points, or 5.43%.

Brocade closes

In other news, Brocade Communications Systems Inc. closed on its new $1.225 billion secured credit facility (Ba2/BB+) on Tuesday, according to a news release.

The facility consists of a $125 million revolver priced at Libor plus 400 bps with a 3% Libor floor for 30 months and a 50 bps commitment fee, and a $1.1 billion term loan priced at Libor plus 400 bps, with a 3% Libor floor for 30 months and soft call protection of 102 in year one and 101 in year two, that was sold at an original issue discount of 961/2.

During syndication, the term loan was upsized from $1 billion as the company's bridge loan was downsized to $400 million from $500 million, the soft call protection was added to the tranche and the original issue discount widened from 98.

The bridge loan will either be replaced by bonds or convertibles.

Financial covenants include a maximum consolidated leverage ratio with an initial level of 4.25 times, stepping down to 2.5 times, a maximum consolidated senior secured leverage ratio with an initial level of 2.3 times, stepping down to 1.5 times, and a minimum consolidated fixed-charge coverage ratio with an initial level of 1.25 times, stepping up to 2.0 times.

Pro forma debt to EBITDA is 3.13 times and the company is targeting to have over $400 million of cash on the balance sheet post closing.

Bank of America and Morgan Stanley acted as the joint lead arrangers and joint bookrunners on the credit facility, with Bank of America the administrative agent, Morgan Stanley the syndication agent, and HSBC and Keybank the co-documentation agents.

Proceeds from the credit facility and the bridge loan will be used to help fund the acquisition of Foundry Networks Inc.

Brocade is purchasing the company for a combination of $18.50 of cash plus 0.0907 shares of common stock in exchange for each share of Foundry common stock. The transaction has an aggregate purchase price of about $3 billion on a fully diluted basis.

The term loan funds were deposited into a restricted Brocade custody account pending the closing of the acquisition and other release conditions.

The acquisition has cleared U.S. and foreign regulatory review, has been approved by the board of directors of each company, and is subject to vote and approval by Foundry's stockholders on Oct. 24, along with certain other closing conditions.

Closing is expected to take place in the fourth quarter.

Brocade is a San Jose, Calif., provider of data center networking services that help organizations connect, share and manage their information in the most efficient manner. Foundry is a Santa Clara, Calif., provider of high-performance enterprise and service provider switching, routing, security and web traffic management services.

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