Arch Coal has seen its bank group shift radically as a greater portion of a $675 million credit facility for its subsidiary, Arch Western Resources, came from institutional lenders. According toJames Florczak, treasurer, about 12-15 of the 30-40 syndicate members were institutions when the subsidiary secured its original term loan in 1998. This time around, however, there are about 12-13 banks in the 40- to 50-member syndicate, he noted. "The proportion has totally inverted," he said, explaining that fewer banks are looking to invest in the natural resources sector and institutions have picked up the slack.
The original term loan, which was incurred when Arch Coal acquired the assets that form Arch Western Resources from Atlantic Richfield, was set to mature in May 2003. The company decided to refinance the credit early so that the debt would not show up as current on the company's balance sheet, Florczak said. In addition, by refinancing in April, the company was able to lock in pricing at a time when spreads were thin.
The $675 million term loan was amended and restated to consist of a five-year, $150 million "A" term loan priced at LIBOR plus 21/ 2% and a $525 million "B" term loan set at LIBOR plus 3%. While securing the refinancing for its subsidiary, Arch Coal also tapped its banks to refinance a $350 million revolver priced at LIBOR plus 13/ 4%, Florczak noted. The original line had been $600 million in 1998, but it was reduced to the current level with proceeds from an equity offering.
J.P. Morgan and PNC Bank led the two refinancings. "We have very strong relationships with both," Florczak said, noting that the banks were underwriters on a significant amount of financing for the 1998 transaction.