Premcor restructured its deal to address a tough pro rata market, and in turn upsized the original amount. The loan breaks down into two term loans, divided between $150 million and $500 million tranches. Jeff Beyersdorfer, v.p. finance and treasurer, explained the deal is structured differently than the existing credit to address a weak pro rata market and to ensure the credit would be fully subscribed. "We wanted to attract different investors," he said. "We were looking at the institutional market and targeted them for the $150 million [portion of the credit] because of the decline in the size of the pro rata market."
Beyerdorfer explained that lead arranger Deutsche Bank created a synthetically funded deal, a strategy that resulted in oversubscription. He said it exceeded the $650 million upsized amount. Deutsche Bank created a $150 million synthetic term loan via a credit-linked note structure. "It has not been done before as far as we know for a non-investment grade credit of this size," said Beyersdorfer. Deutsche Bank structured a $150 million tranche that functioned as a fund to back letters of credit. Deutsche Bank will invest the funds so it generates flat LIBOR for buysiders while Premcor will provide the credit spread. The result is a Deutsche Bank CD with a credit spread (LMW, 8/13). "Deutsche Bank stands in the middle and creates a LIBOR piece of paper," he said, adding that Deutsche Bank adapted the strategy from the credit derivatives market.
Beyersdorfer said pricing did change with the refinancing. "It went up, but not materially," he said. Pricing is based on the company's senior unsecured rating of BB-, which translates into the company paying LIBOR plus 21/ 2%. Deutsche Bank led the company's previous deal, and Premcor did not go out to bid.