Harbor Freight Tools USA Inc., a tool and equipment retailer, is seeking a $1 billion term loan to refinance debt and support a dividend, according to a person with knowledge of the transaction.
Credit Suisse Group AG is arranging the covenant-light transaction and will host a lender meeting tomorrow at 1:30 p.m. in New York, said the person, who asked not to be identified because the information is private.
Harbor Freight has borrowed money in the past to support shareholder payouts. The Calabasas, California-based company took out loans to pay dividends in May 2012 and December 2010, according to data compiled by Bloomberg. Eric Smidt, who started Harbor Freight as a mail-order tool business with his father in 1977, has been chief executive officer for the past 27 years, according to the company’s website. The retailer now has more than 400 stores in the U.S.
Lenders will have until July 24 to let Credit Suisse know whether they will participate in the financing, the person said. The debt, which will mature in six years, will have one year of 101 soft-call protection, meaning the company would have to pay a one-cent premium to refinance the loan in its first year, according to the person.
The company, whose debt to earnings before interest, taxes, depreciation and amortization was 4 times in 2012, according to Standard & Poor’s, is rated B+ with a “stable” outlook by the ratings firm. It has “adequate” liquidity, with $33 million in cash and $99 million available under a $400 million revolving line of credit, S&P said in a May 16 report.
The company obtained a $750 million term loan in May 2012 to pay a dividend, Bloomberg data show. That loan pays interest at 4.25 percentage points more than the London interbank offered rate with a 1.25 percent minimum on the lending benchmark, the data show.
Alan Mutchnik, a spokesman for Harbor Freight, didn’t immediately respond to an e-mail seeking comment.
Under a revolving line of credit, money can be borrowed again once it’s repaid; in a term loan, it can’t. Covenant-light debt doesn’t have typical lender protections such as financial-maintenance requirements.
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