Varco International tapped Wells Fargo to replace leads ABN Amro and J.P. Morgan on the company's new revolver because the bank offered more competitive pricing on the deal. Varco went to the market looking for a bargain on the $125 million, three-year revolver following the expiration of its former credit facility. "Wells Fargo offered the most competitive terms," said Clay Williams, v.p. of corporate development. He said the chosen lead had the best structure and pricing at LIBOR plus 5/8 %. ABN Amro made an unsuccessful bid for the deal and J.P. Morgan has reportedly pulled out of the sector. Officials at ABN declined to comment. Officials at J.P. Morgan did not return calls by press time.
Williams said one attractive feature of the deal is the option to increase the amount by $25 million. "We particularly like the greenshoe feature," said Williams, noting Varco's business model and plans, including corporate acquisitions. He said none are in the offing, but over the last couple of years the company has acquired 17 businesses, such as Quality Tubing and Elmar Services. "We're primarily consolidators," said Williams, adding, "We believe scale economies are compelling in many of our business lines." An M&A advisory mandate from Varco is not up for grabs, however, because acquisitions are handled internally.
The new facility replaces a credit of similar structure, without the extension clause, put in place in 1996 before the merger of Varco and Tuboscope in May 2000. Although the former facility expired five months ago, there was no rush to put another credit in place because Varco had a fair amount of cash on the balance sheet from a $200 million bond issue, explained Williams. Closing on May 1, 2001, the Credit Suisse First Boston, RBC Dominion, Salomon Smith Barney, andSimmons & Company International-led bond deal carries a 71/ 4% coupon and a 10-year maturity. CSFB also joined Varco as a syndicate on the bank deal. Although Varco had ample cash to support its current needs, it was necessary to get the facility in place to support future growth opportunities and acquisition possibilities, said Williams.