Morgan Stanley deepened the original issue discount on a $245 million credit facility for Headwaters from 1.5% to a hefty 2.5% in an effort to close syndication by the end of this week, according to a banker familiar with the deal. In addition, pricing on the five-year, $220 million "B" term loan has been flexed up by 50 basis points to LIBOR plus 4 1/4% in order to attract more buysiders, the banker noted. A Morgan Stanley official declined to comment.
Headwaters will assume all of the financial shortfalls associated with closing the deal, according to Steven Stewart, cfo. But Headwaters has limited the incentives that Morgan Stanley may surrender in order to close the deal, giving the company rights to sever the arrangement if the deal gives away so much that it stops making sense for the company, Stewart explained, declining to elaborate further. The current discount likely would mean $5 million less in bank money for the company.
A banker told LMW that the deal's closing rests on a limited mix of takers during a "really slow, really tough" time in the institutional market. Along with wrapping up the slow summer months, Stewart noted that market players are looking to get past Sept. 11 with caution, but he is confident the facility will inevitably appeal to investors. "The people that have taken the time to look at the credit are confident with it," he added.
The Draper, Utah, power services company is using the loan to back its acquisition of Industrial Services Group, a key coal industry player. The $220 million term loan and two million shares of Headwaters' common stock are slated to fund the proposed acquisition, as well as repurchase $100 million in subordinated notes due 2008.