A $30 million piece of AES Corp. traded out of the hands of a commercial bank recently as a few lenders refused to sign on to a refinancing deal that needed 100% lender approval. The bank that sold the paper was said to have wanted to reduce its large position in the name and was not one of the lenders holding out. Some market players suggested the bank sold out of the name to prepare its books for the year's end.
The deal in question combines a new $1.6 billion loan and an exchange offer of up to $500 million of senior notes due 2002 and 2003 for 10% senior secured notes due 2005 and cash. Existing bank debt under the company's $850 million revolver, a $425 million term loan, and a $262.5 million term loan to the company's AES EDC Funding II subsidiary will be rolled into the new loan, which pushes out the 2003 maturities for three-years. The extension of maturity was said to have been the sticking point for the dissident lenders. "People hold out because they want to get repaid. They just wanted to be taken out," said one official close to the deal.
In exchange, the new loan adds the extra security of first-priority liens on all the stock of the company's domestic subsidiaries and 65% of the company's foreign subsidiaries. Different tranches in the new bank deal possess different collateral based on what paper the lender was holding onto going into the refinancing. Holders of the old $850 million revolver will be rolled into a $300 million revolver and a $550 million "A" term loan, but will still maintain extra guarantees to four of AES' subsidiaries. Holders of the former EDC loan will make up the new "C" piece of the same size and retain their collateral in the EDC subsidiary. The lenders in the company's $425 million loan, which will be the new "B" piece, do not have any additional collateral placing them in the same position as the new notes.
Some market players think that the bank debt will do better after the refinancing deal is completed. "It wouldn't shock me if this trades up after the deal is done," said one dealer, commenting on the extra security that has been given to bank debt holders. A trader concurred citing the stabilization of the company's balance sheet and upcoming asset sales that AES has planned. Earlier reports suggested that Riggs Bank and Chevy Chase Bank were holding out on the deal, but hedge fund players were also named as holdouts. As Loan Market Week went to press last week, dealers acknowledged that there were holdouts, but said all the lenders had verbally agreed to sign on and the deal was likely to close by week's end. Calls to AES officials were referred to the lead bank, Citibank. Officials at Citi declined to comment.