Investors taking a look at the six-year, $200 million "B" loan for Tucson Electric Power are asking for more juice on the deal to bring the pricing into line with other higher priced utility credits on the market. TD Securities and Credit Suisse First Boston launched the deal last week with a spread of LIBOR plus 31Ž 2% and a 1/2% upfront fee. One banker familiar with the deal said, "It is still early to say whether pricing will change, but there are some higher priced deals out there." Kevin Larson, cfo and treasurer of Tucson, did not return calls.
One investor pinpointed Sierra Pacific Resources and newly launched CenterPoint Energy as two deals offering far better yields. The spread on the $100 million "B" loan for Sierra is LIBOR plus 71/2 % with a 3% discount. However, a banker sought to separate the circumstances surrounding Tucson from the other two. "CenterPoint is facing a maturity event. If they don't get it done they will go into bankruptcy." Another banker described the Sierra Pacific scenario as a "gun to the head." Lehman Brothers priced the term loan based off a $250 million bond deal that cleared the market with a yield north of 12%. "They don't feel they are quite as pressed, so they can get away with it," one banker said of Tucson's lower pricing. "They don't have their backs against the wall." The investor acknowledged this and said, "It's a better transaction, but there are still issues."
Bankers also stressed the conservative nature of Tucson. "If you look at the Moody's [Investors Service] report, Tucson is focused on utility operations." One investor cited Tucson's brush with bankruptcy in the early 1990s as a worrying event, but the banker dismissed this by stating, "These were different issues years ago." Furthermore, "Nobody lost a cent from a debt perspective." This is the first time Tucson is tapping the institutional market. The pullback of pro-rata banks to the utility sector is the reason behind the tactic, a banker said. A $60 million revolver and a $140 million "A" loan are priced at LIBOR plus 3% with a facility fee of 50 basis points. Bankers at TD declined comment and a CSFB banker did not return calls.