Only two years after emerging from bankruptcy Laidlaw International is putting in place a new capital structure that will remove restrictions on uses of cash, lower interest costs and smooth debt repayments. Citigroup and UBS are leading $600 million of five-year unsecured bank debt that will replace Laidlaw's existing bank line and with cash on hand retire approximately $560 million of public debt issued by Laidlaw and its subsidiary Greyhound Lines.
The new bank deal was launched last Wednesday and comprises a $300 million term loan "A" and a $300 million revolver. Pricing is based on a ratings-based grid, from BBB+ pricing of LIBOR plus 60 basis points to BB- of LIBOR plus 2%. The current pricing is LIBOR plus 1 1/4%.
Sarah Lewensohn, director of investor relations, explained that at the end of February Laidlaw sold its healthcare businesses, receiving $775 million in cash. It used $573 million of the proceeds to repay existing bank debt and $84 million to purchase company shares for the Greyhound pension plan. Citi and Credit Suisse First Boston led the original $825 million bank debt exit financing for Laidlaw in June 2003. This comprised a $625 million "B" loan and a $200 million revolver.
The school bus provider is now also planning to tender for $404 million of 10 3/4% senior notes due 2011 and redeem $150 million of 11 1/2% notes at the Greyhound level. In addition, $5 million of Greyhound's convertible debentures are also being redeemed. Paying back the bonds lowers interest costs but it also increases Laidlaw's ability to invest in Greyhound, Lewensohn added. She explained that when Laidlaw exited bankruptcy there were concerns about Greyhound's ability to be self-sustaining and so investment was capped. The bonds also restricted share buybacks and distributions. "The restrictions on the debt fit a company emerging from bankruptcy," she noted. Explaining the choice of banks she said Citigroup helped with the exit, while Laidlaw felt both banks had excellent depth to get this done.
Moody's Investors Service has rated the bank loan Ba2 and raised the senior implied to Ba2 from B1. After the proposed refinancing, EBIT-to-interest will improve from about 2 times to pro forma 8 times. Moody's is still concerned about the prospects for growth and profitability at Greyhound, particularly since Greyhound is now a restructured subsidiary and a guarantor of all of Laidlaw's debt. Standard & Poor's has assigned a BBB- rating to the bank loan. According to S&P, Greyhound is the nation's largest intercity bus company and is facing intense competition from airlines offering low fares, automobile travel and, in certain markets, trains and lower-cost regional bus lines.