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Jack in the Box Inc. (JACK - Snapshot Report) recently announced the completion of a bank debt refinance with a new senior credit facility worth $600 million. The five-year facility, with current interest rate of LIBOR plus 2.0%, includes a $200 million term loan and $400 million of revolving credit facility. However, based on the company’s leverage ratio, the interest rate varies between LIBOR plus 1.75% to 2.25%.

The joint lead arrangers and book running managers for the transaction were Wells Fargo Securities, LLC, a unit of Wells Fargo & Company (WFC - Analyst Report) and Merrill Lynch, Pierce, Fenner & Smith Incorporated – a wing of Bank of America Corporation (BAC - Analyst Report).

JACK intends to use the proceeds from the transaction to pay off the existing senior credit facility worth $600 million, having its maturity in June 2015. The company will draw around $220 million of the revolving credit facility and $200 million will be outstanding on the term loan, as of the closing. As the company has replaced the existing credit facility prior to its maturation, it will incur a deferred financing fees expense worth $0.8 million in the first quarter of fiscal 2013.

In connection with the term loan, the company will be required to pay the principal amount of $20 million in each of the first four years and balance in the fifth year, after closing the transaction. Both the facilities will mature in November 2017.

Management expects its refinancing activity to help the company to achieve its strategic plan of forming a long term flexible capital structure, by gaining from low interest rate advantage. Moreover, the company also looks forward to enhancing shareholder value, as the new credit facility provides for around $500 million for share repurchases and dividend payments.

As of July 8, 2012, JACK has cash and cash equivalent of $10.8 million and long term debt, net of current maturities, of $430.4 million. As of July 8, 2012, the company had a total of 2,861 restaurants, including 890 company based and 1,971 franchised units.

We currently have long term Neutral recommendation on JACK. It carries a short term Zacks #3 rank (Hold).

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