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DS Waters Said to Restructure $535 Million Loan Refinancing

DS Waters of America Inc. changed the structure on $535 million in loans it’s seeking to refinance debt, according to a person with knowledge of the transaction.

The distributor of bottled water products cut the size of a 5.5 year first-lien term loan to $340 million from $465 million with $285 million funded at close and the remaining $55 million structured as a delay-draw term loan, the person said.

The Atlanta-based company is also now offering a $125 million second-lien portion with $105 million funded at close and $20 million in the form of a delayed-draw term loan, said the person, who declined to be identified because the terms are private.

DS Waters will pay first-lien lenders interest at 9 percentage points more than the London interbank offered rate up from 6.75 percentage points to 7 percentage points initially offered with a 1.5 percent minimum on the lending benchmark, the person said.

Lenders are being offered one-year soft-call protection of 101 cents, meaning the company would have to pay 1 cent more than face value to refinance the debt during the first year, the person said.

The six year, second-lien term loan carries a so-called pay-in-kind feature, meaning part of the interest payment will be made only upon maturity, the person said. The loan pays interest at 9.5 percentage points more than Libor, with a 1.5 percent floor on the lending benchmark, the person said. The 4 percentage-point PIK payment accrues on a quarterly basis.

Asset-Based Revolver

DS Waters won’t be able to refinance the second-lien portion during the first year, then can do so at 104 cents on the dollar in the second year, 103 cents on the dollar in the third year, 102 cents on the dollar in the fourth year and 101 cents on the dollar in the fifth year.

Both the first- and second-lien portions will be sold at 98 cents on the dollar, the person said, reducing proceeds for the company and boosting yield to investors.

The company is also seeking a $70 million asset-based revolving line of credit, the person said.

Credit Suisse Group AG is arranging the financing and lenders must submit commitments by Feb. 15.

In March 2007, DS Waters obtained a $300 million term loan that pays 4 percentage points more than Libor, according to data compiled by Bloomberg.

Dillon Schickli, chief executive officer of DS Waters, didn’t immediately respond to an e-mail seeking comment.

First-lien debt is repaid first in a bankruptcy or liquidation, second -lien debt is repaid next. In a revolving credit facility, money can be borrowed again once it’s repaid; in a term loan, it can’t.

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