UBS Warburg and Bank of America have filled the roster for top-tier banks on their $6 billion term loan for Devon Energy, backing the purchase of Calgary-based independent senior oil and natural gas producer Anderson Exploration. A UBS banker said that in addition to the co-leads, First Union, J.P Morgan, Royal Bank of Canada, ABN AMRO, Deutsche Bank, Credit Suisse First Boston, Citibank and Bank of Montreal took $600 million pieces. Originally, the banks were offered $750 million pieces, but because of oversubscription, the allocations were scaled back, said the banker. Retail syndication is expected to begin in mid-October, noted the source.
In addition to the bank loan, the company is planning a $2-3 billion bond issuance comprising 10-year and 30-year securities to pay down the first two to three years of the loan in the future. The roadshow for the bonds was executed last week in Boston and New York and pricing was expected last Friday, said the banker. All the banks on the loan are on the tombstone for the bonds, he added. Pricing on the loan is set at LIBOR plus 3/4 % after Moody's Investors Service and Standard & Poor's supplied a split Baa2/BBB+ rating. If the rating is downgraded to BBB, then pricing will rise a 1/4 %, said the banker.
Analyst John Thieroff at Standard & Poor's noted that the credit is on negative watch and could still be downgraded to BBB. High leverage brought the rating down from A-, he said. Devon needs to hedge more than they have been willing to in the past, close or equal to 50% of production, and commodity prices need to recover in the short term, Thieroff stated.