Irving, Texas-based FelCor Lodging Trust has inked a $500 million loan facility commitment from J.P. Morgan and Deutsche Bank in connection with the financing of its $2.7 billion acquisition of MeriStar Hospitality. The loan, which has not yet been priced, will be used to fund the purchase of MeriStar's senior notes that are due in 2008 and could be put back to the company once the merger is complete in the fall, explained Stephen Schafer, director of investor relations for FelCor. The $2.7 billion deal will be financed through $1.1 billion in stock and $1.6 billion in assumed and refinanced debt.
FelCor has also completed a $600 million private placement of senior notes to fund part of the acquisition. The offering was drawn from a $936 million shelf, provided by Deutsche Bank. Schafer declined to comment on the rest of the financing of the acquisition.
"We'd rather have the bondholders keep the notes and not put them back to the company," Schafer said, but the loan is there in case the holders do not pursue this option. J.P. Morgan and Deutsche Bank served as financial advisers on the merger and also are lead lenders on a new $700 million revolver to FelCor, said Schafer, explaining the bank choice. Pricing on the $700 million revolver is LIBOR plus 2%. After the merger, the lines of credit of the merging companies will be updated. MeriStar has a $500 million line of credit led by Lehman Brothers and Wells Fargo Bank, which is being retired. Schafer declined further comment on the credit lines. Wells Fargo is on the new $700 million facility.