United Rentals has overhauled its balance sheet with a new $1.55 billion credit facility and $1.375 billion in notes in an effort to rebalance its debt maturity schedule in front of an expiring revolver. "With the revolver coming due in a couple of years, it made sense to try to refinance the entire balance sheet," said John Milne, president and cfo of United Rentals. The company was aiming to get the maximum duration on the revolver, but wanted to maintain appropriate separation between the maturities of the company's other debt.
The new credit comprises a $650 million revolver, a $750 million term loan, and a $150 million institutional letter of credit facility. The company's new notes include $1 billion of 61/2% senior notes and $375 million in 7% senior subordinated notes. The maturity schedule is aligned such that the revolver matures in 2009, the term loan matures in 2011, and the high-yield senior notes mature in 2012 and 2014. United Rentals made sure that each piece of debt is junior to the piece that matures in front of it, noted Milne.
United Rentals also wanted to secure growth capital and gave the lead roles on the deals to the banks that were willing to provide commitments. "The revolver led the decision making to who was going to be the lead banks," explained Milne. "Those who were willing to commit the capital were given the lead on the transaction. It was important to establish the relatively large revolver to make sure we had the capacity to grow the business going forward," he added. Milne explained that United Rentals would now be poised for growth when the non-residential housing market returned. "Having that dry powder is very important to us," he said, explaining how the company planned to double in size over the next five years.
J.P. Morgan is the lead arranger and for the loan. TD Securities, Bank of America and Credit Suisse First Boston and Citigroup also held roles. CSFB was the lead bookrunner on the bonds with J.P. Morgan, B of A, and Citi as the joint bookrunners. "This group of banks is all in the prior facility and certainly were the ones that supported us in prior financings," said Milne.
The new debt refinanced $639 million in term loans, $52 million of outstanding revolver borrowings, $845 million 103/4% senior notes, $300 million of outstanding 91/4% notes and $250 million of 9% senior subordinated notes. The pricing on the new credit facility is 21/4% across all tranches. This compares to the former revolver and term loan that were priced at LIBOR plus 21/2% and LIBOR plus 3%, respectively. Including the significant reductions in the company's fixed-income debt, United Rentals will be able to save about $30 million in interest costs in 2004. Finally, the company was also able to adjust its antiquated covenants from levels set in 1997 to levels that are more in line with the current size of the company.