Credit Suisse First Boston was on its way to oversubscription for its Northwestern Corp. $390 million "B" term loan only one day after launching it to investors. The credit hit the market last Thursday with investor-friendly pricing, as another utility company surfaced to refinance debt. The fully underwritten credit was consumed by institutional lenders, said a banker familiar with the deal. He added that investors also liked the fact that the line was secured by first-mortgage bonds. The loan carries a LIBOR plus 51/ 2% coupon, with a 3% LIBOR floor. The high pricing emulates other utility sector credits that hit the market this quarter. CenterPoint Energy's $1.3 billion Berkshire Hathaway and CSFB-led deal priced at LIBOR plus 93/ 4% with a 3% LIBOR floor, while CSFB and TD Securities filled Tucson Electric Power's $200 million "B" piece soon after at LIBOR plus 51/ 2% with a 1% upfront fee (LMW 11/18).
"There's a lot of guilt by association when it comes to this sector," commented one investor as to why energy credit spreads have been consistently wide as of late. He contended that the industry lost many of its advocates because of the backlash from the California energy crisis, forcing underwriters to ease investor concern with more attractive pricing. The banker added that the company did not have the established relationships with its banks to get a tighter deal, therefore it had to answer to the market demand with the juiced up deal. "Commercial banks are cutting back," he said.
The NorthWestern credit's term is set for five years and is noncallable for the first three years, with call protection at 103 in the fourth year and at 101 in the fifth year, said another banker familiar with the deal. The senior secured line is secured by the energy and communications services company's first mortgage bonds from its Montana Power business and covers $280 million of the line, while NorthWestern's South Dakota and Nebraska units secure $110 million, the banker stated. NorthWestern selected the secured term debt over its previously unsecured structure because the company felt that the current market conditions called for this sort of arrangement, said Roger Schrum, v.p. of investor relations at NorthWestern. He declined to comment further on the structure of the credit, but noted that the company has an established relationship with CSFB as a primary lender. A CSFB official declined to comment.