MEG Energy's $700 million term loan "B" broke for trading last week, with the funded portion breaking at 100 1/2 and the unfunded part breaking below par. Lehman Brothers and Credit Suisse lead the deal, which the Canadian oil company is using to fund an oil project in Alberta (CIN, 3/3). MEG Energy can draw down $350 million of the term loan immediately, while the other $350 million can be drawn down within two years of the close of the transaction, according to Dale Hohm, cfo at MEG.
The funded portion of the loan traded up to 101, while the delayed draw component continued to trade where it broke, at 99 3/4. "People aren't looking to take unfunded commitments," said a trader, commenting on the under performance of the delayed-draw portion of the loan in the secondary market. He added that investors buying into the loan are required to assume both portions, but can trade it separately. Hohm said the deal was structured with a delayed-draw component because the company does not immediately require all the funding for the project. "The delayed draw helps us to reduce negative carry," said Hohm. "We wanted to have the whole credit facility in place so that we wouldn't have to go back to the market in a year's time to get additional funding."
Hohm said the loan can be traded separately for the convenience of lenders, adding that those who do not want to hold an unfunded portion can trade it away in the secondary market. Pricing on the drawn part of the deal was cut 25 basis points to at LIBOR plus 2% because of strong investor demand. Hohm said the loan was three-times oversubscribed. Pricing on the undrawn portion is 100 basis points in the first year; this increases to 125 basis points after the first year and increases again to 150 basis points in the last six months of the period during which the company can draw on the financing.