Rent-A-Center Seeks $850 Million Loan to Refinance 2016 Debt

Rent-A-Center Inc., the largest U.S. operator of rent-to-own electronics and furniture stores, is seeking $850 million in loans to refinance debt maturing in 2016.

The transaction will include a $500 million revolving line of credit and a $350 million term piece, the Plano, Texas-based company said today in a statement distributed by Business Wire. Proceeds will repay about $348 million of debt under a senior credit pact.

Rent-A-Center had $188 million remaining under a term A piece as of Sept. 30, according to data compiled by Bloomberg. The debt pays interest at 1.75 percentage points more than the London interbank offered rate. It had $89 million drawn under a $500 million revolver, of which $115.1 million was used as a letter of credit, according to an Oct. 25 regulatory filing.

“If we’re able to pay off the A and the amount outstanding on the revolver, that would free up some additional dry powder,” Robert Davis, chief executive officer said yesterday in a telephone interview. “That’s sort of the focus.”

JPMorgan Chase & Co., which arranged the company’s current credit pact, will be leading the refinancing effort with several other lenders in the existing facility, David Carpenter, vice president of investor relations, wrote in an e-mailed statement.

Ratings Cut

Moody’s Investors Service cut its rating on the company to Ba3 from Ba2, three levels below investment-grade. “Weaker than expected operating performance” that drove “significant deterioration in key credit metrics and liquidity” led to the decision, analysts led by Michael Zuccaro wrote in a Feb. 4 report.

“Rent-A-Center’s cash outflow could approach $100 million in 2014,” the analysts wrote. “Cushion under the company’s financial covenants deteriorated significantly in the fourth quarter of 2013. Unless addressed, compliance... will likely be tenuous at best.”

The company’s $300 million of 6.625 percent notes due in 2020 fell to 101.5 cents on the dollar yesterday to yield 6.35 percent, from as high as 106.38 cents on Nov. 6, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

“It doesn’t surprise me that they’d be trading down,” Davis said. “I would suspect it’s due to the recent announcements and the downgrade from Moody’s.”

Rent-A-Center is also seeking approval from lenders to pay a dividend in the second quarter, pending approval by its board of directors, according to the statement. The transaction is expected to be completed this quarter, the company said.

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