A $1.25 billion power loan for Richmond, Va.-based Dominion has hit the market using base pricing derived from traded bonds, according to sister publication Power, Finance & Risk. Syndication for the facility was launched last Tuesday by leads J.P. Morgan and Barclays Capital. Instead of adopting the standard LIBOR plus a fixed basis point spread, the drawn pricing on the facility will be LIBOR plus the average asset swap spread on a defined publicly traded bond. That spread will be determined by getting market dealer quotes on the bonds. Calls to J.P. Morgan were not returned. Officials at Barclays declined comment and Dominion spokesman Mark Lazenby was unable to provide comment by press time.
Indexing the loans to Dominion's bonds offers a plethora of advantages to both the borrower and lenders, enthuse bankers. It should draw more lenders into the transaction, as it reduces the need for them to hedge their loan exposures because the floating pricing effectively marks the loans to market, explains one lender. In addition the loans should behave more like capital market instruments and this should draw the interest of a wider circle of fixed income investors beyond the commercial banking community. One banker sees the formula as a way of breaking the logjam of skittish internal credit committees. "All bank credit committees always want to know, 'How are we being compensated for the risk relative to the bond market?'" he reflects.
For borrowers, the inclusion of such investors should boost the liquidity of the deal and allow for longer loan tenors as lenders will be more comfortable taking long-dated credit exposure where the deal's pricing resets regularly. Bankers say the formula was used in a refinancing for Tyco International last year and a fully underwritten, non-syndicated deal for TECO Energy. The Dominion facility is a 364 day revolver for Dominion Resources, Consolidated Natural Gas and Virginia Electric and Power Co. and their reference bonds for the pricing are, respectively the 6.25% notes of 2012, 6.25% notes of 2011 and 4.75% notes of 2013 A $200 million 3-year senior unsecured facility for Virginia Electric was also launched. The latter facility also includes Bank of America as agent. Commitments for $55 million, $85 million, $115 million and $145 million are due May 14.