Today's LIBOR Rates
1 M |
0.31563 |
 |
3 M |
0.47500 |
|
6 M |
0.68794 |
|
1 YR |
1.06438 |
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Big-League LIBOR Borrowers
Major Companies with Financing Tied to LIBOR
January 19, 2009
LIBOR has a well-documented role in financing obtained by individuals, reflected in mortgages, car loans, student loans and other personal credit with interest rates based on the index. But LIBOR isn’t merely the stuff of John Q. Public’s monthly payments, which admittedly can be considerable if John Q. has a home in Malibu with a Bentley Continental GTC in the garage. Companies rely on LIBOR-based financing as well, including the following major organizations that are looking to increase liquidity, improve cash flow, or stave off demise.
Rite Aid Corporation
Rite Aid is the third largest drug store chain in the United States. In January, 2009, the company announced negotiations to amend a financing agreement relating to its pharmaceutical receivables. Under such a program, a company sells its receivables for a percentage of their total value to improve cash flow. The company then collects the remainder amount of the receivables amount once they are paid, minus a service fee.
In the amendment negotiated by Rite Aid, the company’s program fee would be revised to LIBOR plus 2%, a .75% increase over previous terms. Rite Aid has previously engaged other financing tied to LIBOR, including a $1.75 billion senior secured revolving credit facility which was initially priced at LIBOR plus 1.5%.
The Cheesecake Factory
Billing itself as the creator of “the upscale casual dining segment,” The Cheesecake Factory is a national restaurant chain that began with a home-based bakery in Detroit in the 1940s that morphed into an inaugural restaurant in Beverly Hills in the 1970s. In January, 2009, the company renegotiated its revolving credit facility.
Per amended terms, The Cheesecake Factory’s interest payments on drawn balances will be LIBOR plus a maximum of 2.75% depending on leverage ratio, an assessment of ability to meet financial obligations frequently based on debt, equity, assets and interest expenses. The Cheesecake Factory’s interest payments on drawn balances had previously been LIBOR plus a maximum of 1%. CEO David Overton said the move was made to grant the company “financial flexibility” during the difficult economy.
Southwest Airlines
Founded in 1971, Southwest Airlines grew from a regional carrier serving three Texas cities to the nation’s largest airline measured in number of domestic passengers. At the beginning of 2009, the company completed the sale of 10 aircraft with the plan to lease back the aircraft. Southwest made $350 million in the transaction. Forbes reported that airlines are raising cash to offset an anticipated drop in travel during the recession.
The aircraft lease-back will cost Southwest approximately $15 million for the first six months of its 12 and 16 year agreements. During this period, the lease payment for each plane will be approximately $255,000 per month. Future monthly lease payments will be based on the six-month LIBOR rate.
General Motors, Chrysler
After Congress pilloried the leaders of Detroit’s Big Three and sent them home empty-handed (maybe Southwest can refer them to someone who wants to buy used jets), the executive branch stepped in with over $17 billion in loans to the two most desperate automakers, General Motors and Chrysler.
Interest rate on the adjustable loans is 5% or 3% above LIBOR, whichever is greater. According to Bloomberg News, Standard & Poor’s Leveraged Commentary and Data unit cites high-risk, high-yield companies pay an average interest rate of 10.5% above LIBOR.
GM and Chrysler’s financing arms, GMAC and Chrysler Financial, also received federal loans under the TARP program. Chrysler Financing’s $1.5 billion loan has interest payments equal to the one-month LIBOR rate plus 1% in the first year, adjusting to the one-month LIBOR plus 1.5% for the remainder of the five-year term.