Tesoro Petroleum is negotiating an amendment to its credit agreement that would push out all existing EBITDA-based covenants until Sept. 30, 2003, and replace them with minimum EBITDA and maximum capital expenditure covenants, said Sharon Layman, Tesoro v.p. and treasurer. As the company tries to work out the amendment, its bank debt has been dropping steadily in secondary trading from the low 90s to 84-851/ 2. Layman declined to comment further, citing the ongoing negotiations. But market players said the coupon on the "B" piece is likely to be raised to LIBOR plus 41/ 2% and the amendment fee is 3/8%.
Dealers predicted that levels would continue to slide. "I think that it's going to march its way down into the 70s. There's just too much debt there," one trader said. Another added that if $10-15 million of paper is sold, the bank debt will fall into the 70s. The company is currently suffering from decreased production levels and slim margins in the face of rising inventory prices on crude oil, feeble crack spreads, and a large load of acquisition-related debt (LMW, 9/9).
Tesoro's fate in the loan market has taken a drastic turn since the spring. In syndication, the pricing on the "B" piece was flexed down to LIBOR plus 23/ 4% with a LIBOR floor set at 3%, after the deal was three times oversubscribed (LMW, 4/15). The company amended its facility in May to increase the size from $1.275 billion from $1 billion to partially fund the acquisition of the Golden Eagle refinery from Valero Energy. The pricing on the "B" piece was amended to LIBOR plus 31/ 2% with the LIBOR floor in place.
