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Pep Boys buyout secures $550M financing

by David Holley  |  Published February 10, 2012 at 12:15 PM
PEPboys_227x128.jpgGores Group LLC's $1 billion acquisition of auto parts retailer and repair shop Pep Boys-Manny, Moe & Jack has received $550 million in first- and second-lien committed financing from Credit Suisse Group and Barclays Capital, according to documents filed with the Securities and Exchange Commission Wednesday.

The Los Angeles private equity firm announced Jan. 30 it would buy Pep Boys for $15 per share, or about $790.8 million in cash, and assume $214 million in net debt on the Philadelphia retailer's books. The $1 billion price tag equates to about 6 times Ebitda of $157.4 million as of Oct. 30.

The $550 million debt package will be split up into a $425 million first-lien term loan and a $125 million second-lien term loan. Wells Fargo & Co. and Barclays committed a $325 million secured revolver.

The loans will be used to fund the acquisition and refinance existing debt. The company has $147.6 million in 7.5% senior subordinated notes due 2014, and about $148.6 million in other long-term debt from three senior secured term loans that are due in 2013. The company has about $80 million in cash on its books.

Gores is funding the leveraged buyout with $489 million in equity. It may contribute more if necessary as Pep Boys continues on its road to recovery, said Ryan Wald, a managing director at the firm, in January. The firm hopes to benefit longer term from Pep Boys' business improvements.

After posting consecutive annual losses attributed to bad management decisions, Pep Boys began to turn the business after hiring Michael Odell as CEO in September 2008.

The company turned a $9.9 million operating loss in the year ended Jan. 31, 2009, into a $57.1 million operating profit a year later, rising to $82.6 million in 2011.

The Jan. 30 agreement includes a 45-day go-shop period during which Pep Boys can solicit other offers.

Moody's Investors Service upgraded the company's corporate rating in December to B1, from B2, saying its debt-to-Ebitda ratio had decreased and stood at 4.1.

The service said Jan. 30 it would not make an immediate change to the corporate rating, rationalizing that the go-shop period made it too early in the deal to do so.

Founded in 1921, Pep Boys operates 700 automotive aftermarket retail and repair centers.
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Tags: Gores Group LLC | M&A | Moe & Jack | PE | Pep Boys-Manny
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David Holley

Reporter, private equity

David Holley is a reporter on The Deal's private equity team. In his daily stories and magazine features David covers buyout activity by private equity firms across all sectors, specifically focusing on the debt financing used for leveraged buyouts. Contact



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