LOS ANGELES-CB Richard Ellis has arranged a new $600-million revolving credit arrangement that replaces an existing credit line and helps the company continue the financial strategy of trimming its debt. The locally based company has continued to pay down its debt since 2003, when its borrowings climbed to about $800 million after its acquisition of Insignia/ESG.
Kenneth Kay, CBRE's senior EVP and CFO, notes that the new credit facility and other efforts to trim the company's debt prompted Moody's and Standard & Poor's to upgrade their ratings on its debt recently. Among those efforts was CBRE's recent redemption of $163 million in senior subordinated notes bearing 11.25% interest.
Kay outlined CBRE's debt picture recently at the company's annual Business Review Day in New York. He explained that the company's debt totaled about $500 million in 2001, before the 2003 Insignia acquisition pushed it to $800 million. Since then, it has used both cash flow and $135 million of the proceeds from its IPO in 2004 to pay off debt.
The company used available cash to redeem the $163 million in 11.25% notes, Kay pointed out, and it is also planning to use cash flow to retire more high-interest debt. By using available cash to redeem the $163 million, the company erased a high-interest debt from its balance sheet and reduced its annual interest expense by approximately $18.5 million.
"The rating agencies have really acknowledged the performance of the company in terms of debt reduction," Kay commented in his presentation at the Business Review Day. With the new debt ratings upgrades, CBRE's debt is now ranked just a notch below investment grade, he pointed out.
As a result of arranging the new credit line and redeeming the $163 million in notes, "We will have more cash flow to reinvest in our business, and will have expanded our flexibility to continue our acquisition and co-investment programs and other strategic corporate initiatives," Kay says. The new $600-million credit line, for which Credit Suisse acted as lead arranger, begins at a rate of 125 basis points lower than the previous credit arrangement.
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