Washington, D.C.-based MeriStar Hospitality, the owner of upscale hotels, is paying off its term loans "A" and "B" with a $250 million senior note offering to replace the bank debt with less restrictive longer-term debt. Bruce Riggins, director of finance said the company is making a move because, "bank debt is more restrictive in terms of covenants. The consequences of 9/11 made MeriStar out of compliance and at the mercy of the banks in terms of fees and going after collateral." He explained the goal was to reduce bank debt to 10-15% of total debt. "They [the bank group] are understanding, but had an opportunity to make money through non-compliance. The risk was of being at the banks' mercy," Riggins reiterated.
Société Générale is the lead agent, while Deutsche Bank, Lehman Brothers, Bank of America and FleetBoston Financial make up the syndicate. MeriStar is also using the note offering to reduce the outstanding borrowings under the $500 million revolver to $228 million. There is more flexibility on the senior facility and the company has the option to extend the maturity of the revolver from August 2002 until August 2003. The price of the altered capital structure and flexibility is an increase to LIBOR plus 4% on the revolver from LIBOR plus 188 basis points. Riggins said the notes mature in 2009 and carry a 101/ 2% coupon. Total debt is now just over $1 billion with an average maturity of six years.