Goldman Sachs and Credit Suisse have had to sweeten terms and restructure a $1.17 billion term loan "B" meant to finance American National Power's planned acquisition of the Coleto Creek generation facility in Goliad County, Texas. Prospective participants groused at the originally pitched $935 million first-lien loan, saying it was too debt-heavy, observers said. According to Power Finance & Risk, a CIN sister publication, the leads pared the first lien, created a more richly priced second-lien slice and tacked on other extra incentives to lure participants.
"The market was saying the structure is all first lien and relative to the magnitude of the leverage, that is too much. It was getting knocked around quite a bit," noted one banker. Officials at Goldman and Credit Suisse declined to comment and a ANP official did not return a call for comment.
The deal, which funds the 632 MW plant, is structured into a seven-year, $735 million first-lien tranche priced at LIBOR plus 2 3/4% and a seven-year, $200 million second-lien bearing pricing of LIBOR plus 3%. Originally, the offering carried pricing of LIBOR plus 2 1/2%. The arrangement also includes a $60 million, five-year revolving line of credit and a $170 million, seven-year synthetic letter of credit facility.
As an additional incentive to investors, the loan is being offered at a discount. "This acts as implicit call protection should the debt get taken out early," explained another banker familiar with the topic. The first loan is being offered at an original issue discount of 99.5 basis points and the unrated second lien is being offered at 97.5.
Drawing a comparison, one banker noted that a smaller loan funding the construction of the generation facility Plum Point in Osceola, Ark. led by Merrill Lynch, Credit Suisse and Goldman closed at LIBOR plus 3 1/4%. "True it's a construction loan but [Plum Point] has much less leverage than Coleto," he noted. Plum Point was structured as a $590 million first lien, a $105 million term loan for letters of credit and a $65 million working capital revolver, with about $205 million of equity.
Sean O'Donnell, v.p. at JPMorgan Chase, sounded a warning at a session at Platt's 3rd Annual Utility M&A conference in Manhattan last week, noting that signs of a bubble were starting to form in the debt markets that finance these transactions, referring to the fact that ANP's financing for Coleto priced higher than it had hoped. The ground could shift "as soon as one piece of this chain starts to slip," said O'Donnell.