Spinnaker Exploration Co. sought out the loan market for $200 million in committed revolving credit financing due to the attractive rates and flexibility offered, said Robert Snell, cfo. The new facility replaces the company's existing $200 million revolver, which became current in December. TD Securities, the incumbent lead, Bank of America and Credit Suisse First Boston led the financing. The company has had a relationship with TD Securities since its inception, but brought on the other banks to broaden the group, noted Snell.
The credit provides additional flexibility until Spinnaker's Front Runner project, a field of proven undeveloped reserves, is up and running, explained Snell. Spinnaker anticipates being free cash-flow positive in 2005, he added, explaining why the company did not choose term debt.
Spinnaker has a $200 million commitment, but a $175 million borrowing base. The revolver is broken down into two tranches--a three-year, $125 million "A" piece and 18-month, $50 million "B" piece. The "B" piece was chosen because of the company's Front Runner project. The 18-month facility gives the company the opportunity, even with unanticipated delays, to bring its Front Runner project online, explained Snell. Once that happens the "B" piece will be rolled into the "A" tranche. "We have a fairly unique reserve set," he said.
The pricing on the "A" tranche is based on a grid tied to Spinnaker's borrowing base and ranges between LIBOR plus 11/4-2%. The "B" tranche has slightly higher pricing due to the increased risk. The company's former facility was priced the same as the "A" piece. The former facility also had a borrowing base, which is calculated with regard to reserves and commodity prices, giving Spinnaker $100 million in available credit.