Strong market conditions are leading energy companies to refinance 364-day revolvers with multi-year facilities, a big difference from just a year ago when banks favored shorter terms. Sunoco is the latest example, putting in place a five-year, $900 million revolver that replaces a 364-day facility that was maturing this month and a multi-year segment that had one year left. "Given today's favorable bank market it made sense to redo the package," noted Paul Mulholland, Sunoco's treasurer. "The banks are looking for assets right now and I think we have a good program going and the energy markets were good--Sunoco was looking strong," Mulholland noted.
"But it really starts with the bank markets," he added. The line went out at $800 million and was increased as a result of the oversubscription. The company also has an accordion feature and can take it up to $1 billion. "There was a lot of capacity there," Mulholland added. "It just gives us a little more flexibility in the future."
Recently, Public Service Electric and Gas Co. (PSEG) took out a new five-year, $600 million revolver, replacing a three-year, $200 million revolver due in June 2005 and a 364-day, $200 million revolver that matured last month. "We haven't seen these kinds of terms in quite a while," said Mort Plawner, PSEG's treasurer (LMW, 6/28). "It reflects the confidence investors have in the sector. Investors happen to like the utility business." Vectren Utility Holdings also replaced its 364-day revolver with a five year facility (7/5). "It's such a strong bank market now and more and more companies in the industry sector are being able to obtain multi-year commitments from their bank group," noted Robert Goocher, Vectren's v.p. and treasurer.
All of the banks that Sunoco talked to recognized that the market for the facility was going to be five years and were very receptive to a five-year deal, Mulholland said. "[We are] always looking at the comps to see what is going on in the market. The agent banks keep us filled in on what's happening in the rest of the market," he added. "[We] kept hearing the market was moving to a five-year market, [we were] seeing five-year deals getting done smoothly. By the time it came for us to canvas agent banks, it was pretty clear for us that it was a five-year market."
J.P. Morgan was the administrative agent and held that role on the company's previous credit as well. Mulholland said the company chose the bank because of, "their knowledge of the market and their ability to provide good advice to us to our specific situation... And their ability to commit big numbers if you need them."