Kansas City Southern (KCS) opted to increase its "B" loan by $100 million to $249.25 million to pay for the acquisition of Mexrail. The move was designed to prevent the transportation company's liquidity being hampered, but also the financing had to be put in place within a quick turnaround time. "Between our revolver and cash on hand we had enough to fund the proposed acquisition, but in our estimate it was going to leave our liquidity under the revolver lower than we would like it to be," explained Paul Weyandt, v.p. and treasurer. "The easiest solution to the liquidity issue was to tack on $100 million to a term 'B' and that way we still had full use of a $100 million revolver available to us for future liquidity."
The acquisition had not yet closed, but the money had to be moved to an escrow account last December and KCS had only a short time to figure out how to finance the acquisition. "We knew in discussions with the bankers that the markets were favorable--not only could we tack on an additional $100 million but we could also reduce the pricing on our current facility," Weyandt said.
The spread was decreased from LIBOR plus 2% to LIBOR plus 1 3/4% on the term loan. The company's $100 million revolver is priced on a grid that is currently at LIBOR plus 2%, based on September 2004 financials. KCS drew $5 million of the revolver on Jan. 4, Weyandt noted.
The Bank of Nova Scotia and Morgan Stanley are the leads on the credit, which was put into place last March (LMW, 4/19). "It was well executed by them," Weyandt said. "They indicated that the transaction could be done in a relatively short period of time and that we could improve pricing. They accomplished both of these goals." Todd Vannucci, executive director at Morgan Stanley, worked on the credit with Scotia's Sean Obranksi, director, and Kurt Swanson, director.
Harris Trust and Savings Bank is the documentation agent, while the existing term loan lenders increased their allocations. These include Allstate Life Insurance Co., Alliance Capital Management, American Express Money Management, Babson Capital Management, CypressTree Investment Management Co., Flagship Capital Management, Four Corners Capital Management, HVB Credit Advisors, ING Investments, Invesco Senior Secured Management, Metlife Insurance, The Bank of New York, Bank of Tokyo Mitsubishi, Eaton Vance Management, Citadel Hill, Fidelity Advisors, AIG Global Investment Group, Fidelity Advisors, Foothill Income Trust, Franklin Advisors, UMB Bank, Van Kampen Investments and MJX Asset Management.