Deutsche Bank's innovative financing structure for Premcor Refining Group seemed to strike the right note with investors as the deal filled this week and looked to be upsized. A banker familiar with the credit said that total commitments should be $650 million and the revolver will almost certainly be upsized from $350 million. The $150 million term loan will possibly also be increased, depending on the math, said the banker. He was unable to say by how much at this stage or name the institutions committing, as allocations have not yet been set.
Responding to difficult times in the pro rata market, Deutsche Bank structured a $150 million tranche that functioned as a fund to back letters of credit, mimicked a fully funded term loan but was held as a certificate of deposit (LMW, 6/30). Deutsche Bank will invest the $150 million of institutional money into a fund to back letters of credit for Premcor. Deutsche Bank will then invest the fund so it generates flat LIBOR for buysiders while Premcor will provide the 2 3/4% through fees for the letter of credits.
The result is a Deutsche Bank CD with a combined spread of LIBOR plus 2 3/4%.
The banker said the only question from investors was how the structure worked, and once it was explained investors bought in. The revolver also carries a spread of LIBOR plus 2 3/4%. Fleet Boston Financial was syndication agent and Toronto Dominion documentation agent. Karen Davis, director of investor relations for Premcor, confirmed the loan is close to completion, but declined further comment.