Incumbent lead arranger J.P. Morgan was not invited to lead railroad company Kansas City Southern's (KCS) new $250 million credit facility. "Although they have done a good job for us over the years, for various reasons, we felt it was time to change our banking relationship," said Paul Weyandt, KCS' treasurer. He declined further comment on the reasons J.P. Morgan was not asked to lead. This time around, KCS chose Morgan Stanley and Scotia Capital to lead the $250 million facility. Morgan Stanley is KCS' strategic investment banking firm and Scotia was one of the larger participants in the previous facility, Weyandt noted. A J.P. Morgan spokesman could not provide comment by press time.
"The advantages of the new facility are to provide us with additional financial flexibility by way of less restrictive financial coverage ratios and terms and conditions which allow us to fund our Mexican investments," Weyandt stated. The credit comprises a three-year, $100 million revolver and four-year, $150 million "B" loan. The "B" loan is priced at LIBOR plus 2% and the revolver is priced at LIBOR plus 21/4% for the first six months and then will be priced on a leverage-based grid. KCS previously had a $100 million revolver and $150 million "B" loan. "The bank loan market is generally aggressive early in the year when investors are looking for business without knowing how many deals will be available during the year," Weyandt added.
Excess cash was used to pay down the existing "B" loan to minimize negative carry for a while, in anticipation that the company would refinance the loan, Weyandt noted. The company paid down $49 million in December and $38 million March 1. KCS' previous "B" and revolver carried spreads of LIBOR plus 21/2% and LIBOR plus 23/4%, respectively. "We had expected to be able to tighten pricing by 25 basis points with the opportunity to tighten to 50 depending on market conditions," Weyandt said.