WestLB has offered Reliant Resources a three-month extension on its chunk of the Houston power player's $2.9 billion bridge facility that matures Feb. 19-a move characterized by bankers as unusual and perhaps divisive given that the bank isn't a lead on the deal. One lender says the move suggests a breaking of ranks between the agent banks that are conducting negotiations with Reliant and more junior members of the lending syndicate. WestLB officials declined comment and PFR was unable to discover the German bank's exposure to the deal.
Underlying WestLB's offer is a concern among some lenders about the lack of information flowing to them from the company and the facility agents, according to market officials. With the deadline approaching, the offer is designed to give the lenders more time to assess a deal when finalized, rather than doing hurried 11th hour analysis, says one banker. The refinancing talks are firmly center stage for most commercial bankers because Reliant is looking to rework the deal in a $5.7 billion package, the largest power sector refinancing initiative of the first quarter (PFR, 1/13).
WestLB, which copied its proposal to the other lenders involved in the refinancing talks, offered the extension for a 125 basis point fee and tighter covenants, details of which could not be ascertained by press time.
One banker says there appears to be a fault line developing between lead agents Deutsche Bank, Barclays Capital and Bank of America and the other lenders. The top three have such large exposures to Reliant that they are more susceptible to Reliant's hardball tactics, says one lender. Reliant has signaled that bankruptcy may be on the cards if it can't get an agreement on the loans (PFR, 12/9). "There is a feeling that the agents haven't done a good job of pushing it along, to get to this stage with so little on the table," says the lender. Calls to the three lead agents were not returned.
But it's a moot point whether granting the extension is a good idea right now, says one lender. While conceding the timetable is tight, he adds granting an extension could diffuse the focus on the deal. "If you give people more time, then they take more time," he says. He thinks the banks can get close to a deal by the February deadline at which point a short-term extension may be in order.
Outline terms for the new loan of three to five years and pricing in the range of 350-450 basis points have been floated. But one financier notes nothing is concrete and the major issues of collateral and the use of cash-sweep traps have yet to be tackled.
The facility was set up at the turn of last year as bridge financing for Reliant's acquisition of Orion Power. A planned bond market takeout last year was scuppered when market sentiment turned so strongly against the power sector.