Staples, the office supply store with the Easy Button commercials, has said in a SEC filing that Barclays is assuming the credit agreements made with Lehman Commercial Paper Inc, including its $750 million revolving line of credit. This is good news for banks and credit markets.
An important question in the meltdown of so many financial firms has been what will happen to the credit agreements. Panic over whether corporate revolving credit lines will stay open if a firm is acquired in a government orchestrated rescue has been driving companies to draw down on their revolvers, a move that greatly annoys the banks.
If you don’t work in corporate finance, you might not appreciate how much banks hate when borrowers draw down on revolving lines of credit. Typically a corporate borrower will have a revolver built into its larger credit facility. In the case of Staples, Lehman promised to provide a revolver as part of the financing for the acquisition of Dutch rival Corporate Express in June.
Unlike bond issuances and syndicated term loans, banks cannot easily hand the credit risk and capital requirements onto other investors. In short, when borrowers draw down revolvers that money comes out of Wall Street’s coffers. With banks still highly levered and under tremendous balance sheet pressure these days, the threat of corporations drawing down their revolvers could exacerbate the situation. In a worst case scenario, banks could be forced to sell assets or raise money to cover the loans.
Although few companies draw down on their revolvers, the risk that the lines of credit could become unavailable has reportedly caused an uptick in drawings. Barclays move to assume the obligations under the Staples revolver should help soothe the nerves of corporate financial officers.
Barclays also assumed Lehman CPI’s role as lender of a $750 million revolving credit agreement and $400 million term loan, Staples said.
Below is the Staples SEC filing.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 25, 2008
(Exact Name of Registrant as Specified in Charter)
(State or Other Juris-
diction of Incorporation
Five Hundred Staples Drive, Framingham, MA
(Address of Principal Executive Offices)
(Registrant’s telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry into a Material Definitive Agreement.
Barclays Bank PLC (“Barclays”) has agreed to assume the obligations of Lehman Brothers under Staples, Inc. (“Staples”) existing credit agreements made in connection with the acquisition of Corporate Express N.V., as specifically detailed below.
On September 25, 2008, Barclays entered into an Assignment and Assumption Agreement with Lehman Commercial Paper Inc. (“Lehman CPI”) to assume all of the outstanding rights and obligations of Lehman CPI as lender under Staples’ $3 billion credit agreement, dated as of April 1, 2008, as amended as of July 1, 2008, with Lehman CPI as administrative agent, Bank of America, N.A. and HSBC Bank USA, National Association as co-syndication agents, and Lehman Brothers Inc. as lead arranger and bookrunner (the “2008 Agreement”). The 2008 Agreement provided financing for Staples’ acquisition of all of the outstanding capital stock of Corporate Express, including related transaction fees, costs and expenses, by permitting direct advances and/or backstopping the Program (as defined below under Item 8.01). Amounts borrowed under the 2008 Agreement may be borrowed, repaid and reborrowed from time to time, with the aggregate principal amount of the loans outstanding not to exceed the maximum borrowing amount of $3 billion. Barclays is also assuming all of the outstanding rights and obligations of Lehman CPI as lender under Staples’ $750 million amended and restated revolving credit agreement, dated as of October 13, 2006, as amended, and of Lehman Brothers Commercial Bank as lender under Staples’ $400 million term loan, dated as of July 1, 2008.
The parties to the Assignment and Assumption Agreement and their respective affiliates have performed, and some may in the future perform, for Staples and its subsidiaries various commercial banking, investment banking, underwriting and other financial advisory services, for which they have received, and may receive, customary fees and expenses.
Item 8.01 Other Events.
J.P. Morgan Securities Inc. has been added as a dealer under Staples’ commercial paper program (the “Program”) pursuant to a Commercial Paper Dealer Agreement, dated as of September 19, 2008. LaSalle Bank continues to act as issuing and paying agent under the Program. The creation of the Program was previously reported in Staples’ Current Report on Form 8-K filed June 13, 2008 (the “Program 8-K”). As described in the Program 8-K, Staples may issue up to $3 billion of notes under the Program, which is backstopped by the 2008 Agreement, with maturities of the notes issued under the Program varying but not exceeding 397 days from the date of issue. The notes bear such interest rates, if interest bearing, or will be sold at such discount from their face amounts as shall be agreed upon from time to time by the dealers under the Program and Staples. Amounts available under the Program may be borrowed, repaid and reborrowed from time to time, with the aggregate principal amount outstanding under the Program not to exceed the maximum aggregate amount.
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