Deutsche Bank and Wells Fargo Bank have fattened pricing and added tranches to their $265 million credit for Veritas DGC. The company, a close cousin to the energy sector, could not disguise its bloodline and met with resistance from investors. "The 'B' guys wanted the changes," said a banker familiar with the deal. "The market didn't like the way it was structured." He noted the lead arrangers had to answer concerns about the credit's collateral with a new structure. A Deutsche Bank official declined to comment, while a Wells Fargo official could not be reached by press time. "I don't think the changes were that radical," said Matthew Fitzgerald, cfo of Veritas. He explained that some of the banks wanted a subordinated piece, while some investors wanted a higher yield. "It was to provide additional flexibility for every type of investor," he added.
The deal originally had two-tranches, but now has four parts. There is a four-year, $125 million "B" piece priced at LIBOR plus 5%, with a 2% LIBOR floor; a five-year, $40 million second lien secured "C" loan was also created, set at LIBOR plus 71Ž 2%, with a 3% LIBOR floor. The pro rata now includes a three-year, $60 million revolver and a three-year, $40 million "A" term loan, the banker stated. Call protection at 102, 101 was also added. The original structure comprised a $200 million "B" piece priced at LIBOR plus 31Ž 2% with a 1/4% up-front fee and a $75 million revolver priced on a grid ranging from LIBOR plus 21Ž 4-3%. The newly structured deal for Veritas, a seismic data gatherer for oil and gas companies, is furthermore $10 million less than the initially proposed credit.
One investor commented that factors like volatility in the gas and oil sectors, lack of sector knowledge by investors due to bank and staff consolidation over past years, as well as global political issues in the industry all work against the credit. "We axed it just because of the industry," he said, explaining that some investors feel that cash flow in the oil exploration sector can be volatile.
The agents are looking for commitments across all tranches, a banker noted, adding that the deal is now expected to close next month. The new credit will refinance the Houston-based company's existing Wells Fargo-led revolver, scheduled to expire in August 2003, along with $135 million in 9 3/4% senior unsecured notes that were callable after last Oct. 15. Those notes do not mature until Oct. 2003.
