In the midst of a housing downturn, Bank of America and Morgan Stanley launched syndication last Wednesday of a $1.425 billion credit facility for Crescent Resources, a residential and commercial property development company. The deal consists of a $200 million revolver and a $1.225 billion term loan, according to a banker. Pricing could not be determined by press time.
Charlotte, N.C.-based Crescent focuses on markets in the southeastern and southwestern U.S. The company was formerly owned by Duke Energy, but now is owned by a joint-venture between Duke and Morgan Stanley Real Estate Fund, formed in early September. The credit is being used by Duke Energy as part of the recapitalization of Crescent following the venture. The transaction gives Crescent a total enterprise value of close to $2.1 billion.
"The initial reaction seems to be that it's a good company with a bad structure," said one investor. "Bad capital structure, bad debt structure so until they clean that up, we're not going to play that is if they do clean it up." He cited the large amount of debt already on Duke's books. Duke has more than $18 billion in outstanding long-term debt of which over $4 billion is in credit facilities split between numerous energy subsidiaries including Duke Power, Duke Capital and Cinergy.
A company spokeswoman said Duke was looking for partners and after considering a number of opportunities went with Morgan Stanley because of its strong reputation in the real estate market and its financial expertise. She also said Duke is spinning off its gas business and expects to have that completed in January 2007, which will give it the opportunity to focus on its core business in the electric industry.
Moody's Investors Service rated the credit Ba2 and noted that ratings could improve with a decrease in leverage below 2.5 times. Ratings could decrease if coverage ratios continually stay below 2.5 times and if leverage increases to above four times. The company's debt leverage could not be determined by press time.