Reliant Energy cancels plans for new term loan; BCE buyout may fall apart; GM, Ford, rise with market

By Sara Rosenberg

New York, Nov. 26 - Reliant Energy Inc. has opted not to go ahead with its proposed term loan financing as the decision was made to exit its commercial and industrial business, significantly reducing long-term capital requirements.

Also on the new deal front, BCE Inc.'s leveraged buyout may not go through because it may not be able to meet the solvency test in the purchase agreement, and if the transaction is canceled, a massive amount of pending debt would be removed from the loan market.

Moving to the secondary, General Motors Corp. and Ford Motor Co. were both higher in light trading as cash overall felt better.

Reliant not proceeding with proposed loan

Reliant Energy announced on Wednesday that it will not go ahead with its previously announced $650 million senior secured term loan due November 2012 from GS Loan Partners, according to a news release.

In addition, the company is also terminating its proposal to sell $350 million of 14% convertible participating preferred stock to First Reserve Fund XII LP in a private placement.

The financings were going to facilitate an accelerated unwind of the credit-enhanced retail structure with Merrill Lynch. However, with the change in strategy, the company is now pursuing a longer term unwind agreement with Merrill.

"We believe Reliant has adequate liquidity without the GS Loan Partners and First Reserve financings and this course of action creates more value for our shareholders," said Mark Jacobs, president and chief executive officer, in the release.

Reliant explained that since it now plans to get away from its commercial and industrial business, it doesn't need as much liquidity.

The company's board of directors is currently conducting a full review of strategic alternatives, including the sale of all or substantially all of Reliant as well as the sale of some or all of its retail business.

Reliant loan terms

Reliant's term loan was going to be priced at Libor plus 450 basis points with a 3.75% Libor floor, according to filings with the Securities and Exchange Commission.

Also, the term loan was going to be subject to a 10% prepayment premium during the first year, 5% during the second year, 3% during the third year and no prepayment premium in the fourth year.

Covenants were going to include minimum availability and maximum hedging limitations as well as consolidated secured leverage and total leverage ratios.

Plans for the new financings were originally announced back in September.

Reliant is a Houston-based provider of electricity and energy services.

BCE buyout in question

BCE's leveraged buyout could fall through because the company does not expect to be in a position to deliver on the Dec. 11 scheduled closing date an opinion that it would meet the solvency tests in the definitive agreement, which is a condition to closing, according to a news release.

This anticipation of not meeting the solvency requirements is based on a preliminary view from KPMG, and is a result of current market conditions, analysis to date and the amount of debt involved in the buyout.

BCE said that should KPMG be unable to deliver a favorable opinion on Dec. 11, the transaction is unlikely to proceed.

"We are disappointed with KPMG's preliminary view of post-transaction solvency, which is based on numerous assumptions and methodologies that we are currently reviewing. The company disagrees that the addition of the LBO debt would result in BCE not meeting the technical solvency definition," remarked Siim Vanaselja, chief financial officer, in the release.

BCE failure would remove big chunk of debt

BCE's leveraged buyout is expected to be funded with a C$23.05 billion credit facility and a C$11.3 billion bridge loan to back high-yield offerings - and these financings would be unnecessary if the transaction is terminated.

The credit facility, as outlined under the original commitment letter, consists of a C$2 billion six-year revolver, a C$4.2 billion six-year term loan A, a C$16.5 billion seven-year term loan B and a C$350 million one-year delayed-draw term loan.

Citigroup, Deutsche Bank, RBS Securities and TD Securities are the lead banks on the debt.

Last summer, BCE agreed to be acquired by Teachers Private Capital, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC for an offer price of C$42.75 per common share and all preferred shares at various prices ranging from C$25.25 to C$25.87.

The all-cash deal is valued at C$51.7 billion, including C$16.9 billion of debt, preferred equity and minority interests.

BCE is a Montreal-based communications company that provides telephone, internet, television and information services.

GM, Ford gain ground

Switching to trading happenings, General Motors and Ford both saw their term loans move up on Wednesday as cash generically felt better, according to a trader.

General Motors, a Detroit-based automotive manufacturer, saw its term loan quoted at 39½ bid, 41½ offered, up from Tuesday's levels of 36½ bid, 38½ offered, the trader remarked.

And, Ford, a Dearborn, Mich.-based automaker, saw its term loan quoted at 40 bid, 42 offered, up from 37 bid, 39 offered, the trader continued.

The trader remarked that there was really no reason for the auto names to be up by a couple of points on the day other than the sentiment in the general cash market was pretty positive. He labeled cash overall as being up by about a point, while adding that there was little to no volume because it was a shortened pre-holiday session.

U.S. Silica closes

In other news, Golden Gate Capital and Preferred Unlimited completed their buyout of U.S. Silica Co. from Harbinger Capital Partners Funds, according to a news release.

To help fund the transaction, U.S. Silica got a new $102 million seven-year term loan A that is priced Libor plus 550 bps with a 3.25% Libor floor and an original issue discount of 97 - in line with initial talk.

The deal, which was led by BNP Paribas, was fully subscribed by 12 accounts.

The only change that had been made to the loan during the syndication process was a downsizing by $43 million from $145 million.

The lost term loan funds was made up through a variety of ways, such as the equity financing for the deal was increased by roughly $12 million, the mezzanine financing for the deal was increased to $80 million from $74 million, the purchase price for the company was reduced and some customer contracts are helping to make up the difference as well.

U.S. Silica senior leverage in the two's

U.S. Silica's senior leverage is 2.1 times and leverage through the mezzanine debt is 3.75 times. Prior to the term loan A downsizing, senior leverage was 3.0 times and total leverage was 4.5 times.

Amortization on the loan is 2% in the first two years, 11% in year three, 12% in year four, 15% in years five and six, and the remainder in year seven.

Covenants include total leverage, minimum interest coverage and minimum fixed-charge coverage.

The company does have an existing $35 million ABL revolver that is remaining in place.

U.S. Silica is a Berkeley Springs, W.Va.-based producer of ground and unground silica sand, kaolin clay, aplite and related industrial minerals.

Micron closes

Micron Technology Inc. closed on its $285 million in term loan financing on Wednesday that was used to help fund the purchase of an ownership stake in Inotera Memories Inc. from Qimonda AG, according to an 8-K filed with the SEC.

The debt includes a $200 million one-year term loan from Nan Ya Plastics Corp. and an $85 million term loan due May 26, 2009 from Inotera, with both tranches priced at Libor plus 200 bps.

Micron Technology is a Boise, Idaho-based semiconductor manufacturer. Inotera Memories is a DRAM memory manufacturer based in Taoyuan, Taiwan.

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