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a tight timetable to complete their financing before competing
bidders could.
The Lease
One portion of the LBO financing was both a capital
contribution and asset financing from a sale-leaseback entity
called Corporate Property Associates 7 (CPA7). In this LBO
financing arrangement, CPA7 agreed to purchase the bottling
facilities Bottlers used to bottle its products (located in seven
locations in three States) and lease them to Bottlers on terms
favorable to CPA7. The lease had a 25-year term and contained
significant rent escalators. As a result, the lease offered a
premium to CPA7 because it would eventually rent at premium or
above-market rates as the rent escalated.
Because of the onerous lease provisions, the management
group knew Bottlers eventually had to renegotiate or buy out the
lease to avoid the rent escalators. Six years after the LBO, the
management group was considering buying the bottling facilities
from CPA7 to avoid further rent escalators, but the prospect of
Bottlers owning the bottling facilities posed three problems.
First, the management group wanted Bottlers to be salable to
Coke or Pepsi. Neither Coke nor Pepsi, however, would buy
Bottlers if it owned bottling facilities because Coke and Pepsi
already had bottling facilities.
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Last modified: May 25, 2011