Tesoro Petroleum selected Lehman Brothers to both advise on its acquisition of some of BP's refineries, distribution and gasoline marketing operations and to provide Tesoro with financing for the deal amidst a turbulent market. Lehman restructured the acquisition financing in addition to having a LIBOR rate-floor incorporated into pricing on the bank debt to keep investors interested in the credit. David Chacon, director of investor relations, said the debt structure was altered in mid-syndication to increase the "B" term loan from $300 million to $450 million. And the company's bridge loan financing was downsized to $200 million from $350 million, providing a more balanced senior to junior-debt structure, he explained. The bridge loan facility is scheduled to be replaced with bonds next year. The LIBOR rate-floor was put in place at 3%, to assuage investor fears over lowering total returns due to a historically low LIBOR rate of 2.5% (LMW, 10/8).
BANK ONE, Bank of America, Credit Lyonnais and ABN AMRO, previous lenders on Tesoro's $200 million revolver, took roles on the credit and Lehman has also been a previous lender. Chacon declined comment on why specifically Lehman was selected to lead the financing and advisory work.
The term loan "B" was still attractive to investors throughout the past month when other new issue credits have been hammered. Chacon explained the refining market is attractive right now as the industry is experiencing very good crack spreads on a historical basis. The crack spread is the synthetic measure of margin in the industry. The credit also has a $175 million revolver, an $85 million term loan "A", and a $90 million delayed-draw term loan. Pricing on the pro rata is LIBOR plus 2 1/4 %. On the "B" tranche, the spread is LIBOR floor-rate of 3% plus 2 3/4 %.