White Mountains Insurance has restructured its credit facilities to make the bank debt more closely resemble bonds by tapping institutional investors and decreasing the exposure of commercial lenders. The original credit was set up in June 2001 to back the acquisition of One Beacon Insurance Group." We wanted to restructure the debt so it no longer looked like a leveraged financing acquisition vehicle but more like longer-term debt," saidReid Campbell, a v.p. in capital markets at One Beacon, now a wholly owned subsidiary of White Mountains. But, "The bond markets have been too skittish."
White Mountains intends to tap the bond market next year to take out the bank debt. In the interim, the company can at least be more comfortable with the debt structure, he added. Explaining the decision to move money away from commercial lenders to the institutions, Campbell noted, "They demand higher rates, but the money is longer-term and the conditions are different," he said.
"The company has wanted to do this for some time and [lead bank] Lehman Brothers, in September, thought the timing was right," he added. White Mountain set out to raise $228 million, the equivalent of the "A" loan. But in October the market experienced a tightening and there was not enough capacity for that amount, he said. Instead, investors in the pro rata agreed to move $100 million from the "A" into a "C" loan and $50 million was raised from new accounts. "The market surprised us with how quickly it changed, but it is a clear demonstration of the strength of the deal that we got it completed," he added.
The old structure consisted of $354 million in the institutional portion and a $394 million, three-year pro rata. The pro rata tranches remain priced at LIBOR plus 21/ 8%, but the "B" loan pricing has been flexed up 1/8% to LIBOR plus 3%, the same as the new "C" loan. The "B" and "C" tranches amortize at 1% per year with the balance in 2007. Additionally, there is a prepayment penalty on the bank debt of 50 basis points, but this expires this month, Campbell said. There is no official bank to lead the bonds, but it is likely Lehman and the other lead banks will front a deal, he added.