Fleet Bank was previously the sole lead arranger and Wachovia was an agent, but Wachovia stepped up as a lead because of its presence in the sector. "They're a big bank and they're very active in the MLP space," noted Swanson. Bank of America is a co-lead on the transaction. Natural Resources Partners also recently turned to Citigroup and Wachovia to improve the tenor, pricing and covenants on its bank line with a new five-year $175 million credit facility. Natural Resources is a MLP that owns and manages coal properties. The banks have a lot of experience in the MLP sector and are very active in the capital markets raising equity, concurred Dwight Dunlap, cfo and treasurer. PNC Bank, the previous lead arranger, did not play a part this time around. "It was their decision not to participate," he noted.
Kinder Morgan Energy Partners was one of the first pipeline MLPs to be established and Wachovia was an investor in that original venture. "Wachovia's investment in Kinder Morgan was a quite profitable investment and because of that we knew a lot about the MLP structure and the benefit of having that structure within the pipeline space and as a result we have become one of the larger lenders and bond underwriters to that space," explained Ross Payne, a director in fixed income research at Wachovia.
The number of MLPs is also on the rise. "The reason why MLPs are so attractive as an asset class is that you're paid a high current yield, which is in the form of a distribution, which is basically the same form as a dividend except its taxed at the ordinary income level," Payne said.
Explaining the timing behind the decision to replace the previous credit, Natural Resources' Dunlap said the old facility had a three-year tenor and was set to mature in October 2005. "Our existing facility came current in October and we felt it was time to not only go out and renew it, but renew it under longer terms." Plains All American was also able to secure the longer tenor of five years, but Swanson believes the longer tenor is more of an overall market trend and is not specific to MLPs. "People have shifted away from 364-day facilities and three and four year revolvers to go into five year revolvers," he noted.
Natural Resources' new credit also has other advantages. There are lower commitment fees on the unused portion and lower upfront fees, Dunlap noted. The spread is based on a grid that ranges from LIBOR plus 1 1/4-2%. Covenants were also lightened. The leverage ratio was loosened to 3.75 times from 3.5 times. There is also an accordion feature that allows the line to be increased up to $300 million without obtaining bank consent.