Huntsman rises as market feels better; LCDX trades up; Chaparral Energy cancels revolver plans

By Sara Rosenberg

New York, Dec. 17 - In trading news on Wednesday, Huntsman Corp.'s term loan regained some of the ground that it lost at the start of the week on the termination of its merger with Hexion Specialty Chemicals Inc., and LCDX 10 traded higher.

Over in the new deal market, Chaparral Energy Inc. has called off the attempt to syndicate and complete its proposed revolving credit facility as the company's pending acquisition of Edge Petroleum Corp. was terminated.

Huntsman heads higher

Huntsman's term loan recouped a lot of the losses that it experienced earlier on in the week when it ended the merger agreement with Hexion, and the only thing traders could point to behind the positive momentum Wednesday was market technicals.

The term loan was quoted at 55 bid, 57 offered, up from Tuesday's levels that were in the 48 bid, 53 offered type of range, traders said. At the end of last week, before the termination of the merger was announced, Huntsman's term loan was quoted at 59 bid, 62 offered.

One trader remarked that everything was better on Wednesday, saying that, for example, NRG Energy Inc., a Princeton, N.J.-based owner and operator of diverse power generation portfolios, saw its strip of term loan and letter-of-credit facility debt quoted at 85¾ bid, 86¾ offered, up from 83½ bid, 84½ offered.

The trader went on to say that the Dow Jones Industrial Average was up over 300 points on Tuesday and the loan market couldn't catch a bid, so even though stocks were a little weaker on Wednesday, maybe loan levels were having a delayed reaction to Tuesday's equity strength.

"[Or] maybe some guys buying loans into year end. I have no idea," the trader added.

Huntsman is a Salt Lake City-based manufacturer of differentiated chemicals and pigments.

LCDX inches up

Also in the secondary market, LCDX 10 was stronger even though stocks were marginally down, according to a trader.

The index was quoted at 75.70 bid, 76.10 offered, up from around 72.75 bid, 73.15 offered, the trader said.

Meanwhile, Nasdaq closed down 10.58 points, or 0.67%, Dow Jones Industrial Average closed down 99.80 points, or 1.12%, S&P 500 closed down 8.76 points, or 0.96%, and NYSE closed down 35.17 points, or 0.61%.

Chaparral not getting new revolver

Switching to primary happenings, Chaparral terminated the commitment letter for its proposed $1.2 billion five-year secured revolving credit facility. being that its purchase of Edge Petroleum will no longer be taking place, according to an 8-K filed with the Securities and Exchange Commission on Wednesday.

In October, Chaparral had said in an 8-K filing that it was working on syndicating its revolver, but the effort was being complicated by market turmoil and related developments worldwide.

Chaparral also said in that October filing that its proposed sale of series B preferred stock for the Edge acquisition was subject to the revolver meeting certain criteria, and that the failure to meet those conditions could jeopardize the closing of the equity deal and the revolver.

On Wednesday, the company confirmed that it was highly unlikely to be able to enter into the new revolver and the conditions to the closing of sale of series B preferred stock were highly unlikely to be satisfied.

"Particularly in light of recent turmoil in the financial markets and energy industry, the parties were unable to identify and secure alternative sources of sufficient debt and equity financing to allow them to complete the merger and operate as a combined company, despite their efforts in this regard," the Wednesday filing added.

Revolver was subject to availability, pricing limits

In order to successfully complete the acquisition of Edge, Chaparral needed its revolver to meet certain requirements, such as a specific amount of availability and a cap on how much pricing could differ from the commitment letter.

Specifically, the revolver conditions included that there be an initial borrowing base of $1 billion, that availability be at least $325 million as of the closing date, and that pricing was not more than 125 basis points above those presented in the pricing grid of the financing commitment term sheet.

The commitment letter outlined pricing as being to able to range from Libor plus 150 bps to 325 bps, depending on use, and the commitment fee to be able to range from 37.5 bps to 50 bps.

Covenants were going to include a current ratio and a senior total debt to EBITDAX ratio.

JPMorgan, RBS Securities and SunTrust were acting as the lead banks on the revolver that was going to be used to refinance debt.

Chaparral closing conditions couldn't be met

Chaparral and Edge agreed to end their acquisition agreement based on the conclusion that there was no reasonable expectation that all of the closing conditions would be met on or prior to Dec. 31, the date on which either party could terminate the agreement unilaterally, the Wednesday 8-K filings said.

Under the agreement, Edge common stockholders were going to receive 0.2511 shares of Chaparral common stock for each share of Edge common stock.

Furthermore, holders of Edge's 5.75% cumulative convertible perpetual preferred stock were going to receive one share of Chaparral 5.75% series A cumulative convertible perpetual preferred stock for each share of Edge preferred stock.

In connection with terminating the agreement with Edge, Chaparral canceled its stock purchase agreement with Magnetar Financial LLC, under which Magnetar was going to purchase 1.5 million shares of Chaparral series B convertible preferred stock for $150 million.

Magnetar will pay Chaparral a $5 million termination payment, of which $1.5 million will be paid to Edge for reimbursement of certain expenses.

Chaparral is an Oklahoma City-based oil and natural gas production and exploitation company. Edge is a Houston-based energy company.

Precision Drilling carve-out firms at $75 million

Precision Drilling Trust finalized the size of its term loan B carve-out at $75 million - as previously expected - and pricing at Libor plus 800 basis points with an original issue discount of 85, according to a market source.

Originally, price talk on the carve-out had been at Libor plus 725 bps with a discount of 85.

The remaining $325 million 53/4-year term loan B is priced at Libor plus 600 bps with an original issue discount of 80 and a 3.25% Libor floor - after flexing up during syndication from original talk of Libor plus 500 bps with discount guidance in the 86 area.

The carve-out was done for certain CLO investors that couldn't get involved in the deal at a discount of 80.

Precision's $1.2 billion senior secured credit facility (Ba1/BBB-) also includes a $400 million five-year revolver and the $400 million five-year term loan A, with both of these tranches priced at Libor plus 400 bps, in line with original talk.

Precision covenants include coverage and leverage ratios

Precision's credit facility includes a minimum interest coverage ratio of 3.0 times, a minimum fixed-charge coverage ratio of 1.0 times in 2009 through 2010 and 1.05 times thereafter, and a maximum total leverage ratio of 3.0 times.

Last week, the company made some adjustments to its credit facility to help the books along before the deal's scheduled close on Dec. 23, including, among other things, revising amortization and the excess cash flow sweep.

Under the changes, amortization on the $400 million 53/4-year term loan B was increased to 5% per year from the previously proposed 1% per year.

The excess cash flow sweep was increased to 75% when the company's consolidated leverage ratio is greater than 2.0 times, 50% when leverage is greater 1.25 times, 25% when leverage is greater than 0.75 times, and 0% when leverage is less than 0.75 times.

Also, limitations were placed on cash distributions, including that the company must be in compliance with all financial covenants, including the fixed-charge ratio, which picks up distributions.

And, a capital expenditures restriction was added, limiting expansion capital expenditures to a level of 50% above the base case projections before consideration of the excess EBITDA adjustment, the source added.

RBC Capital Markets and Deutsche Bank are the joint lead arrangers and bookrunners on the deal, with RBC the administrative agent and left lead, Deutsche the syndication agent, and HSBC and TD Securities the co-documentation agents.

Precision buying Grey Wolf

Proceeds from Precision's credit facility will be used to help fund the acquisition of Grey Wolf Inc. for $9.02 in cash or 0.4225 Precision trust units, subject to proration. The maximum amount of cash to be paid will be about $1.12 billion, and the maximum number of trust units to be issued will be about 42 million.

Other financing for the transaction will come from $400 million of senior unsecured notes, which are backed by a commitment for a $400 million 12-month unsecured bridge loan. The bridge loan will be reduced by the amount of Grey Wolf's convertible securities that are not converted or redeemed at close.

Total senior secured debt will be 1.12 times, total debt will be 1.67 times and total capitalization will be 4.09 times.

Completion is still subject to Grey Wolf shareholder approval. The Grey Wolf special meeting of shareholders is scheduled for Dec. 23 after being pushed out from an original date of Dec. 9 because of a clarifying amendment that was made to the acquisition agreement.

Precision is a Calgary, Alberta-based provider of high performance energy services to the oil and gas industry. Grey Wolf is a Houston-based provider of turnkey and contract oil and gas land drilling services.

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