There are very few credit concerns, but investors are still smarting from some bad experiences with Renco, which is led by Ira Rennert. Renco's Lodestar Energy, Magnesium Corp. of America and WCI Steel have all gone into bankruptcy since 2001.
Citi is speaking with potential lenders to see what it will take to get the deal done, a market participant said. The $400 million "B" loan is being flexed up to LIBOR plus 4 1/2% from LIBOR plus 3%, a buysider noted. The $165 million second-lien "C" loan is being talked in the LIBOR plus 6-7% range, up from original talk of LIBOR plus 5 1/4%, he added. Both term loans will be offered at 99 with 105, 103, 101 call protection. The credit also includes a $50 million revolver.
One lender noted that Renco will only have a minority interest of 30% in the company and will not have a management role after this transaction is completed. Perelman will be in charge. Some lenders said they were also not fully comfortable with Perelman, after several of his companies have become highly leveraged, though investors are less wary of the ultra-wealthy financier. An AM General spokesman referred questions to Renco and MacAndrews officials. Citi bankers and a MacAndrews spokeswoman declined comment. Michael Ryan, of Cadwalader,Wickersham and Taft, the firm representing Renco, did not return calls. Calls to Rennert's office were referred to a spokesman, who did not return calls by press time.
AM General manufactures military and special purpose vehicles including the HUMMER and HUMVEE. Last week General Motors told AM General to slow production of the HUMMER H2, though that does to appear to affect the credit. "It hurts them a little bit but it's the military business that really drives it and supports the credit," the buysider noted. "The consumer market SUV, the GM relationship, gets all of the headlines. It's really sort of a secondary factor in the credit story." The loan isn't negatively impacted by the HUMMER as it is non-recourse and doesn't pay back the loan, the lender noted. While the HUMMER business has declined the HUMVEE military business is growing, the buysider noted. Workers are being shifted to a HUMVEE plant from a HUMMER plant.