Abundant capacity and flexible terms in the bank loan market led Paramount Resources to its first institutional investor loan. The Canadian energy company last month closed on its first term loan "B" to pay down borrowings under its revolving credit facility and expand its borrowing capacity. "The capacity is there on terms we like," said Bernard Lee, cfo, commenting on bank loan market conditions. The company is using the loan to pay down C$146 million drawn on its revolver, as well for general corporate purposes.
Lee said he likes the flexibility of the institutional term loan market. Unlike the bond market, the company can pay the loan back when it wants. This is a big advantage that loans have over bonds, said Lee. He would not comment on when the company plans to pay it back.
The new term loan is priced at LIBOR plus 4 1/2%. It is secured by Paramount's 36% interest in North American Oil Sands Corporation, a private Alberta-based company formed to buy and develop oil sands properties. The revolver it replaces has a 4.9% interest rate. UBS Securities leads the new financing, which is syndicated to institutional investors located primarily in the U.S. and Canada. UBS is also a lender in its existing revolver. The Bank of Montreal leads the revolver.
Lee said the term loan is priced in line with its credit ratings. "CFOs will always complain pricing is too expensive," said Lee in response to whether he was satisfied with the pricing. Moody's Investors Service assigned a Caa1 to the new term loan. At the same time, it downgraded the company's corporate family rating to Caa1 from B3 and its senior notes rating to Caa1 from B3 because of its high leverage, weakened capital productivity and weak organic reserve and production growth.