Credit Suisse First Boston and Wachovia Securities hit the market last week with a $550 million refinancing for specialty chemical manufacturer Hercules. Proceeds from the new credit facility and a $250 million senior subordinated bond issue will be used to repay around $570 million in existing bank debt and redeem some preferred stock and senior notes. The facility consists of a five-year, $150 million revolver, which will be undrawn at closing, and a six-and-a-half year, $400 million term loan. The revolver is priced at LIBOR plus 23/4% and the term loan went out at LIBOR plus 21/2%. Hercules officials were traveling and could not be reached. CSFB and Wachovia bankers did not return calls.
"I think it will go well. It's got strong ratings," one loan investor said. But another raised the issue of Hercules' unfunded pension plan and asbestos liabilities that muddy the waters. "If you add in asbestos liabilities and the unfunded pension plan, leverage goes up a lot," a buysider said. "The ratings agencies focus on just debt, if you look at everything you get a different picture."
Hercules is a defendant in numerous asbestos-related lawsuits, with 33,220 unresolved claims as of December 2003, Moody's Investors Service notes. The company's balance sheet includes a gross liability of $221 million and an insurance receivable of $162 million. Moody's believes the company's exposure can be managed within its rating category. In addition, Hercules' pension plan is currently underfunded, but 2003 gains have eliminated mandatory funding requirements, Moody's says. The company intends to continue contributing about $40 million per year for the next several years, Moody's adds. The credit facility is rated Ba1.