Investors are reacting positively to the bank debt backing First Reserve Corp.'s $1.25 billion acquisition of Dresser Rand Co. from Ingersoll Rand Co. Citigroup, Morgan Stanley and UBS launched the deal last Monday, with a $295 million seven-year "B" loan being offered at LIBOR plus 2 1/2% and a $100 million euro tranche priced at LIBOR plus 2 3/4%. There is also a five-year, $300 million revolver.
In addition to being in the currently popular energy industry, one buysider commented on the sponsors' substantial $435 million equity investment and the cushion provided by a $420 million bond offering. He said the way Dresser-Rand has been presented to lenders is a razor/razor-blade business. "The service maintenance side is remarkably stable and is the razor-blade business and that is where the margins are," he noted. The other half, manufacturing compressor equipment, is lower-margin and is tied to the overall energy sector and is more cyclical, he added.
Thomas Dennison, managing director of First Reserve, said the business is strong because they have the world's largest installed base that makes it less tied to the commodity business (8/27). Calls to the lead banks were not returned.