BancTec $150M Sr Notes Downgraded to `B+' by Fitch IBCA.NEW YORK--(BUSINESS WIRE)--July 22, 1999-- BancTec, Inc.'s (BancTec) $150 million senior unsecured notes downgraded to 'B+' from 'BBB- ' and the company's new senior secured credit facility is assigned a 'BB' rating by Fitch IBCA IBCA International Braille Chess Association IBCA Institute of Burial and Cremation Administration IBCA Integrated Business Communications Alliance IBCA International Barbeque Cookers Association IBCA Department of Interior Board of Contract Appeals . This action follows a RatingAlert negative issued by Fitch IBCA on April 5, 1999, when the company announced that it was merging with a corporation formed by the private investment firm Welsh, Carson, Anderson & Stowe (WCAS WCAS Weinberg College of Arts and Sciences WCAS Warfighter Communication Assessment System (US DoD) ), and the subsequent review with management of the financial and operating impact on BancTec from the transaction. The rating actions reflect the significant increase in leverage and weakened coverage ratios resulting from the transaction in addition to the market challenges BancTec is facing with the transition underway within the industry segments it serves resulting in slower sales and increased margin pressures over the past 12 months. Also taken into account is the fact that outstandings under the new bank facility will have the benefit of a security interest in the assets of BancTec to the extent permitted under the senior note agreements. However, the new ratings do consider the company's currently strong position in the marketplace, the fact that approximately 50% of the revenues are recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. , the huge installed base, the geographically diversified cash flows and customer base, and the potential for increasing revenues and profitability from a new product line, which includes imaging and workflow solutions. Under the terms of the transaction, WCAS is essentially leading an investor group that is acquiring BancTec through a merger transaction under which BancTec's existing public shareholders are receiving $18.50 in cash per common share for a total transaction value of $525 million, including the existing senior notes. The transaction is structured to be accounted for as a recapitalization Recapitalization Restructuring a company's debt and equity mixture often with the aim of making a company's capital structure more stable. Notes: Companies often want to diversify their debt-to-equity ratio to improve liquidity. so the existing senior notes will remain outstanding following completion of the transaction, and a new $125 million senior secured credit facility is being established. In addition to the senior notes, there will be $160 million of WCAS-provided, 10% cash pay, 10-year bullet subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". , and $145 million in equity from WCAS and Covergent Partners LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control . Any sale of assets will first be required to reduce the credit facility, if any. Also, the subordinated debt issued by WCAS will have a 10% coupon unless there is a default on the credit facility whereby the interest on the subordinated debt will be paid in kind, albeit at a higher rate. As a result of the transaction, pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma bondholder Bondholder A firm often has stockholders and bondholders. In a liquidation, the bondholders have first priority. bondholder An individual or institution that owns bonds in a corporation or other organization. protection measures will be considerably weakened with pro forma leverage, defined as total debt as a multiple of earnings before interest, taxes, depreciation, and amortization Earnings before interest, taxes, depreciation, and amortization (EBITDA) A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. (EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become ) increasing to 4.2 times (x) from 1.6x at fiscal year-end Fiscal Year-End The completion of a one-year, or 12-month, accounting period. Notes: The reason that a company's fiscal year often differs from the calendar year and does not close on Dec 31, is due to the nature of company's needs. 1998 and pro forma EBITDA coverage of interest declining to 2.8x from 10.7x at fiscal year-end 1998. Both pro forma ratios assume that the capital structure had been in place on Jan. 1, 1999. Revenues for 1998 were flat as the company experienced a 1% decline. Bank mergers and consolidations, year 2000 concerns, and increasing competition were all factors contributing to a flat 1998. EBITDA (excluding restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. ) declined to $97 million, a decrease of 15%. Sales of a lower-margin product line and less profitability from the services segment contributed to a lower EBITDA. Fitch IBCA believes the company will continue to experience challenging industry conditions for most of 1999. Uncertainty still exists regarding customers' plans regarding year 2000 issues, which are delaying purchasing upgrades and new system purchases, as well as the acceptance of the company's new Internet-enabled products and new check processing software. Fitch IBCA believes the first half of 2000 will exhibit higher revenue growth and better profitability. On July 12, 1999, BancTec announced that it was selling its community banking and data center to Jack Henry & Associates for approximately $50 million in cash and the assumption of certain liabilities. It is expected that this transaction will close at the end of the third quarter. All proceeds will immediately be used to reduce the credit facility. Fitch IBCA believes this transaction makes sense since it will initially reduce leverage and, it also illustrates BancTec's desire to concentrate on its core operations. BancTec is a worldwide systems integration and services company specializing in enterprise payment and document management solutions for several industries. The company has also been active in the personal computer maintenance and services segment. In October 1998, BancTec announced that it planned to restructure into two primary businesses: transaction processing Updating the appropriate database records as soon as a transaction (order, payment, etc.) is entered into the computer. It may also imply that confirmations are sent at the same time. Transaction processing systems are the backbone of an organization because they update constantly. and document management and desktop and network services. There is uncertainty regarding the reorganization and transition that is currently underway. The company plans to have a leaner structure by having a more concentrated product and market focus. |
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