Private equity-backed US bank National City has pulled out of financing Kohlberg & Company’s take-private of sports events caterer Centerplate, a deal valued between $185 million and $205 million.
National City had agreed to provide $175 million of debt financing when the deal was forged in September, consisting of a $90 million term loan facility, a $60 million revolving credit facility, and a $25 million letter of credit facility, according to Centerplate Securities and Exchange Commission filings.
Late last month, Kohlberg received a letter from the Cleveland-based bank stating that in National City’s judgment, events had occurred in the financial markets since the original deal was agreed that “could reasonably be expected to have an adverse impact in a material respect on the successful syndication of the proposed senior credit facilities”.
Last week, Kohlberg advised Connecticut-based Centerplate that it had received another letter from the bank explicitly stating that National City was not going to fund the deal, but would be willing “to continue discussing alternative financing arrangements”, according to portions of the letter cited in the SEC filings.
Under the merger agreement struck between Kohlberg and Centerplate, if Kohlberg is not able to find alternative financing and does not close the merger within 30 days, Centerplate may terminate the agreement and force Kohlberg to pay a $2.5 million termination fee.
In September, Silicon Valley-based Kohlberg agreed to pay roughly $58 million to the owners of Centerplate income deposit securities, an unconventional security which marries public equity shares with debt notes, in addition to assuming more than $120 million in debt.
American Stock Exchange-listed Centerplate provides gourmet catering services to more than 120 sports facilities, convention centers and other entertainment venues throughout the US and Canada. The company’s shares had slid after it said in April that it may halt dividend payments due to credit-related difficulties.
National City's reluctance to finance the deal is somewhat symptomatic of how severe turmoil in the credit markets has rattled private equity firm’s ability to close acquisitions.
Although a significantly larger deal with broader legal implications, the Apollo Management Group-backed merger of Huntsman and Hexion Specialty Chemicals remains uncertain as financing sources Credit Suisse Group and Deutsche Bank have declined to extend debt.
The SEC filings did not disclose whether Corsair Capital-backed National City’s decision to back out of the Centerplate deal was related to the bank’s $5.2 billion merger with PNC Financial Services Group agreed last month.
That deal, still to be completed, included a $7.7 billion investment from the US Treasury under the Troubled Asset Relief Program’s Capital Purchase Program, the portion of the so-called US “bailout bill” recently earmarked for equity investments in struggling US banks.