A Topping for Domino's Pizza

A recapitalization plan boosts the shares to a new high

Domino's Pizza, Inc. (DPZ) said Feb. 7 it will buy back stock and debt, in an effort to ease the terms of its borrowing agreements. Investors cheered the news, bidding up the stock 12.8% to $32.38 -- a new high -- in heavy volume on the New York Stock Exchange.

The pizza delivery company is going to take on a new short-term loan providing for borrowings of up to $1.35 billion. Then it will use that money to pay $27 to $30 per share for up to 22% of its stock. At the same time, the company will buy back and repay older, existing debts, including $274 million of senior subordinated notes due in 2011. The intended result is a switch of previous financing into an asset-backed loan of up to $1.85 billion.

"Based on the strong cash flow characteristics of our business, the appropriate corporate finance decision for our company is one that includes significant leverage," said CEO David A. Brandon in a press release. "The most efficient and flexible debt we can negotiate is asset-backed securitization, which provides the lowest cost of financing available to us."

Brandon also promised to pay a possible one-time dividend, which Standard & Poor's Equity Research analyst Mark Basham thinks could be as high as $5. Basham upgraded Domino's Pizza shares to hold from sell. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)

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