Allegheny Energy has launched a $1.6 billion loan package that will target institutional investors because its corporate credit rating is too submerged in junk territory for typical utility lenders. "It's just too down-market for most utility [bank] lenders," said one financier. But with high-yield investor demand for paper so strong, the deal is likely to be snapped up, bankers said. Guy Fletcher, a spokesman at Allegheny, declined comment.
The loans will refinance debt at Allegheny and Allegheny Energy Supply and carry ratings higher than the B minus corporate mark because of their secured nature. "In the current market conditions, every institutional loan can be sold at a price so long as the credit is solid," said Thomas Murray, managing director at WestLB in New York. Murray says so much money is flowing into institutional funds that the supply of "B" loan paper just cannot keep pace.
The debt package comprises an $800 million, seven-year first-lien term loan "B" priced at LIBOR plus 325 basis points; a $500 million, 7.25-year first-lien second priority term loan "C" priced at LIBOR plus 450 basis points; and a $300 million, three-year unsecured revolver priced at LIBOR plus 300 basis points, according to a banker tracking the deal.
Leads Citigroup and Bank of America are looking to land commitments by Feb. 20 and wrap the deal by Feb. 29. An official at B of A said the firm doesn't comment on individual deals and officials at Citi declined comment.
The deals are aimed at giving the Hagerstown, Md., player more breathing room under its bankruptcy-avoiding $2.4 billion refinancing package set up 12 months ago. Lenders signed up for those loans only after making many of the tranches secured and also setting a stiff amortization schedule, said bankers. Allegheny has to make repayments of $470 million this year and $1.7 billion next year, according to a recent research note by Lehman Brothers. With the "B" loan market demand/supply dynamics strongly in favor of borrowers, Allegheny is looking to tap into that and extend maturity to the looming debt, according to one financier.