Terex Corporation issued $300 million in bonds two weeks ago as a sweetener for banks leading an increase of the company's existing revolver. Illustrating the difficulties associated with getting plain vanilla revolvers done in a market increasingly looking for return, the company cranked out a bond deal to generate fees for underwriters Credit Suisse First Boston and Salomon Smith Barney, the two banks leading the credit increase. "Basically it's hard to increase your revolver without generating fees for the banks," saidJack Lascar, director of investor relations. He noted the company decided to raise debt through the bond market to expedite completion of the company's revolver, as it encountered difficulty getting banks to increase its existing $125 million revolver to $300 million.
Lascar declined to discuss specific fees on the bond offering versus the bank debt, as he called it a "delicate situation." Calls to Citigroup and CSFB were not returned by press time.
Lascar attributed the decision to the difficult pro-rata market. "Banks are reluctant to commit to money that's not working or undrawn," he said. Lascar said the company would have done the revolver without the bond offering if it had been looking for the increase a year ago, when the market was more friendly to borrowers. One banker said he was surprised that the bank deal would be the sole driver for a bond offering but noted, "The [bank] deals that have gone the best are those with near-term opportunities or ancillary business for major participants. Regardless of the economics, people tend to fall all over to get a piece of a bond deal."
As Lascar explained it, once the company decided on a bond deal it had originally pegged a $200 million offering to go along with the bank deal to pay down $200 million of its $600 million in other outstanding term loan debt. "But there was so much demand for the company's debt, we issued $300 million," said Lascar in response to the oversubscription on the offering. The notes mature in 2011 and have a coupon of 103/8 %. Lascar said the company has not decided whether or not it will re-pay an even higher amount of its outstanding debt with the extra $100 million in proceeds. Lascar said the company increased its three-year credit facility to respond to the company's growth over the last couple of years. "We can't run a $2.1 billion company with a $125 million revolver. We're keeping too much additional cash on the balance sheet," he said. CSFB and Citigroup are currently in general syndication with the new credit.