Bergen Gets Some Good News at Last: a New Line of Credit

Bergen Brunswig Corp., a drug wholesaler whose credit rating has been cut three times since April, said Wednesday that Chase Manhattan Bank will underwrite and arrange a new $1.5-billion line of credit.

The new loan will replace Bergen’s two existing revolving credit lines--a $600-million, 364-day line due April and a $400-million line due March 2001. The company’s borrowing capacity also will be expanded by $500 million.

Shares of Orange-based Bergen, the third-largest U.S. drug wholesaler, have fallen 80% in the last 12 months as performance lagged at Stadtlander, a newly acquired specialty drug distributor, and PharMerica, a nursing home pharmacy operator.

Bergen was downgraded three times by Moody’s Investors Service in the last year and is rated “Ba2,” two notches below investment grade.

“This gives them a bit of breathing room, but they have to fix some fundamental problems,” said Steven Valiquette, a Warburg Dillon Read analyst with a “hold” rating on Bergen. “But you’re only fixing part of the problem. You’re putting a Band-Aid on a knife wound.”

The stock rose 19 cents to $5.13 a share Wednesday in New York Stock Exchange trading.

At the start of 1999, Bergen had a “Baa1” long-term debt rating, or three notches above junk status, but Bergen’s shortfall in cash flow caused Moody’s to cut the rating in April.

The lower rating forced Bergen to give up collateral on its new loan, secured on the company’s assets such as buildings, inventory and receivables. Moody’s cut Bergen’s rating in December and again Feb. 8.

Bergen said it had agreed to pay a spread ranging from 200 basis points to 250 basis points more than the Libor or London interbank offered rate. That’s more than double the 80 basis-point spread the company is paying on its existing bank lines and reflects Bergen’s deteriorating credit quality.

“We’re very seasonal in our capital needs, and this will more than meet those needs,” said Neil Dimick, Bergen’s chief financial officer. “We don’t plan to use the full amount during the next year.”

Bergen will use the new credit to refinance existing debt and fund general corporate and working capital needs. The company expects to begin drawing funds from the credit line in April.

“This is a pretty important positive, and it came slightly sooner than anyone anticipated,” said Christopher McFadden, a Goldman, Sachs & Co. analyst with a “market perform” rating on Bergen.