Mirant is offering to pay an extra 100 basis points and reduce the size of its $1.125 billion revolver by one-third in order to complete a refinancing, but it is asking its banks to give something up in return. The company is demanding that a material adverse change (MAC) clause is not introduced into its facility and that the option to term out the loan for one year is kept on the table. "Obviously, the bank market is trying to reduce exposure to our industry, and we have proposed to reduce the bank facility by a third," saidRaymond Hill, cfo. "We're also willing to pay higher fees, as long as we are granted the things we need." The current facility matures on July 17 and, if it is not refinanced by then, the company can term it out -- not a desirable outcome for the banks.
Credit Suisse First Boston, Bank of America and Salomon Smith Barney are leading the refinancing charge, and about 10 top-tier lenders from a syndicate of 26 have credit committee approval for the proposed $750 million revolver, Hill said. Mirant completed a $370 million convertible debt offering last week, which is why the bank line can be reduced, he noted. "The banks have realized MAC clauses are counter-productive," he stated, adding that he did not think the company's request would be an issue. Officials at the lead banks either did not return calls or declined to comment.
MAC clauses can provide some additional protection to banks in the event a credit goes bad, which has been happening a lot lately. But bankers and ratings agencies have noted that certain MAC clauses can create a liquidity crisis. Because Mirant has been downgraded from investment- to speculative-grade since its last financing, pricing has risen and some credit-related protection has been built in, a banker familiar with the deal said. With those things factored in, banks should be comfortable without a MAC clause, he noted. Mirant currently is a Ba1-rated borrower, but Moody's Investors Service has the company on review for a possible downgrade.
Hill said he envisions three scenarios. "We get everybody in by the July 17 [maturity date], we term out for a few days until it is completed or we term out for a few months," he said. Commenting on whether the term-out option could be used as a threat to convince reluctant lenders, he added, "The threat of the term out exists whether we use it or not." All-in pricing on the current deal is LIBOR plus 105 basis points.