Houston-based energy exploration company, Magnum Hunter, two weeks ago closed a $225 million credit facility with lead Deutsche Bank after putting the credit out to bid to Deutsche Bank, Credit Lyonnais, BNP Paribas, and CIBC Workd Markets. After Deutsche Bank was selected as administrative agent, Chris Tong, cfo of Magnum, explained that the company tapped CIBC to act as syndication agent. "We put the business out to bid to our existing lenders that we thought could play a lead role," he said. Tong said the company's decision to select Deutsche Bank as the lead was more a result of the company's comparatively longer historical relationship with the firm rather than a more competitive pricing structure. In terms of Deutsche Bank winning future bond business from the company, Tong said, "Certainly they will have a good opportunity to do that."
Tong, choosing not to be specific about pricing, said the new credit is priced 25 basis points over LIBOR less than the existing two credits it will replace. "I wouldn't call this a robust credit market for anybody, especially energy, but it's better than it had been a year ago," said Tong, regarding overall pricing improvements for the sector in the loan market. The loan is a refinancing of two separate existing credits the company had outstanding through two different subsidiaries. "We rolled together the two credits, making the loan amount increase and we re-set the borrowing base, which is $112.5 million," said Tong, explaining that the borrowing base has slightly increased due to the company's improved year-end performance reports.
The credit is a three-year revolver with the ability to extend the maturity after the first year. Tong said he expects improved cash flow this year to enable the company to pay down on the revolver prior to its maturity. "We hope to pay it down. We are in the mode of reducing our debt-to-capital ratio from 83% to 63%," he said. The credit will be used for working capital purposes.