Just weeks after securing a new $200 million term loan, TEPPCO Partners has used $90 million in proceeds from an equity offering to reduce the term loan by an equal amount. Charles Leonard, cfo, said the Houston pipeline operator initially needed the larger term loan to close its acquisition of Val Verde Gathering System before the end of June. In addition, TEPPCO needed time to file the appropriate financial statements and meet Securities and Exchange Commission requirements for the equity offering, he explained.
The new six-month term loan was not syndicated; rather SunTrust Bank picked up the entire exposure to the paper. TEPPCO approached SunTrust for the financing because the bank is very familiar with the company, Leonard noted. The company would have syndicated the loan, but there was little demand because of the short-term nature of the paper and TEPPCO's intention to reduce the outstanding amount, he explained. "If we finance something with debt, we follow up with equity to reduce the debt," he said.
The loan is priced to encourage TEPPCO to repay the remaining balance of the loan as soon as possible. Pricing is based on a grid tied to ratings and is set at LIBOR plus 140 basis points until September 30. After that, pricing increases to LIBOR plus 165 basis points. "[The] emphasis is to get the term loan paid as quickly as possible," Leonard said.
The company also has a 364-day, $200 million revolver expiring in March 2003 and a multi-year, $500 million revolver that matures in 2004. Both lines were tapped to help fund the acquisition, with $72 million outstanding on the 364-day facility and the multi-year revolver fully drawn.