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act quickly to complete the deal and to avoid further escalations
of rent.
The Purchase
The management group formed an unrelated entity called
Mid-Con Properties, Inc. (Properties) as a short-term solution to
buy the bottling facilities from CPA7 in 1994. The management
group owned 100 percent of Properties.
To fund the purchase, Bottlers obtained a loan from one of
its original LBO investors, the Prudential Life Insurance Company
(Prudential). Bottlers lent the loan proceeds to Properties (the
Properties loan) on the same terms Bottlers had with Prudential.
Properties then used the proceeds to buy the facilities from CPA7
and assumed the lease. The bottling facilities collateralized
the loan from Bottlers.
Properties and Bottlers amended the lease to remove the rent
escalators and implemented a rent payment structure equaling the
amounts due on the Properties loan. Accordingly, Bottlers
periodically paid Properties rent payments, and Properties paid
Bottlers loan payments at the same times. Bottlers’ rent
payments equaled Properties’ loan payments. No cash needed to be
transferred between Properties and Bottlers for them to satisfy
their respective loan and lease obligations to each other. This
zero net cashflow effect was an essential part of the deal to
satisfy Prudential that the payments Bottlers made to Properties
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Last modified: May 25, 2011