The three banks shopping a $420 million term loan to cover CenterPoint Energy's debt maturities due Nov. 15 are pushing up against a commitment deadline this week. The new loan, led by Bank of America, Credit Suisse First Boston and Deutsche Bank, is the key to a financing package that quells the threat of bankruptcy for the company. A $4.7 billion package completed last month by J.P. Morgan and Citibank is contingent upon the company securing the $420 million credit with a separate bank group. If the second credit does not come through, the company faces accelerated maturity on the $4.7 billion credit Nov. 15. Commitments for the $420 million credit are due Thursday and the deal is scheduled to close Nov. 13. "The timing's really tight," said one buysider, noting that the deal's security structure is complicated and the time frame is short. "It may be tough" to close in time.
The deal hit the market at a bank meeting last Tuesday, and pricing on the three-year credit is set at LIBOR plus 41 2%, with a 21 2% upfront fee. Bankers on the deal either declined to comment or did not return calls. The refinancing credit would cover $300 million in maturing senior notes for the CenterPoint Energy Houston Electric subsidiary, as well as maturing $100 million pollution control bonds, said Marianne Paulsen, director of investor relations. She would not comment further on the matter beyond saying that the company expected to refinance by the deadline. Gary Whitlock, CenterPoint cfo, did not return calls.
CenterPoint has hit some bumps on the refinancing road because of the energy sector's risk profile in the loan market. "The utilities are all getting beat up," a banker noted. He added that the present tumult among the California power markets and energy trading has reflected in the sector's deal spreads lately. CenterPoint rounded out its last credit with LIBOR plus 3-4% rates.
CenterPoint and other energy conglomerates feel that the sector woes are only temporary, a banker said. He explained that this is why the utility companies are tapping the institutional debt market, setting up pre-payable loans, rather than bonds. "It's an odd situation where companies with investment-grade ratings profiles are forced to address liquidity" issues, the banker added. Suddenly, companies are tapping the institutional market at high coupons, when they would typically be tapping bank lines and commercial paper, he noted. "[But, the commercial lenders] are not open for business at the moment," he stated, explaining why the companies are calling on institutions.