Grey Wolf pulled as merger falls through; B/E tweaks deal; Broadlane structure emerges; Masonite softens

By Sara Rosenberg

New York, July 15 - Grey Wolf Inc. removed its proposed credit facility from the forward calendar on Tuesday as the company failed to get shareholder approval for its merger with Basic Energy Services Inc.

In other news, B/E Aerospace Inc. upsized its term loan, added a step down in pricing and tightened the original issue discount, and Broadlane released details on the size and structure of its credit facility as the deal is gearing up for a Thursday launch.

Moving to the secondary market, Masonite International Inc.'s term loan B was under some pressure as investors continued to contemplate the company's recent amendment request.

Also in trading, General Motors Corp.'s bank debt was unchanged to lower after news hit that the company would be undertaking new liquidity raising initiatives, but some thought that any heaviness was more a function of the overall market tone.

Grey Wolf eliminated its $650 million credit facility (Ba1/BBB-) from the list of upcoming deals after the merger with Basic Energy, which the debt was going to help finance, fell through as a result of Grey Wolf's shareholders turning down the transaction proposal at a special meeting on Tuesday, according to a market source.

Basic Energy's stockholders voted in favor of the merger agreement at their special meeting on Tuesday.

The credit facility consisted of a $325 million five-year term loan A and a $325 million five-year revolver, with pricing on both tranches expected to range from Libor plus 300 basis points to 350 bps depending on leverage.

The revolver was expected to have a commitment fee that could range from 37.5 bps to 50 bps.

Financial covenants were going to include a maximum leverage ratio of 3.50 to 1.00, and a minimum fixed-charge coverage ratio of 1.25 to 1.00 through June 30, 2010 and 1.50 to 1.00 thereafter.

Other financing for the merger was going to come from $275 million of 10-year senior unsecured notes. These notes were originally scheduled to kick off with a roadshow on July 8, but it was then decided that the launch should be postponed until after the shareholder meeting took place.

When the merger was first announced, it was expected that the credit facility would include a $275 million term loan B, but that tranche was later removed in favor of the bonds.

UBS and Goldman Sachs were going to act ad the joint lead arrangers and joint bookrunners on the credit facility, with UBS the left lead.

Under the voted down merger agreement, which has been terminated, Grey Wolf shareholders would have received $1.82 in cash and 0.2500 shares of new Grey Wolf per share, while Basic Energy Services shareholders would have received $6.70 in cash and 0.9195 shares of new Grey Wolf per share.

Proxy voting advisory firms have been split on their recommendations for the merger of Grey Wolf and Basic Energy with, for example, RiskMetrics Group coming out against it, and Egan-Jones Proxy Services and Proxy Governance Inc. coming out in favor of the transaction.

"The board, employees and shareholders of Basic were excited about the merger with Grey Wolf and certainly disappointed that Grey Wolf's shareholders did not approve the merger," said Ken Huseman, president and chief executive of Basic Energy in a news release.

"We continue to believe the combination created by the merger of Basic and Grey Wolf would have created significant value for both company's shareholders. With the termination of the merger agreement, Basic can now return to our focus of building value for our shareholders as we address numerous opportunities to build our business through acquisitions, expansion of our footprint and internal growth within our established markets," Huseman added in the release.

Grey Wolf said on Tuesday that in light of the termination of the merger agreement, it plans to review alternatives for enhancing shareholder value. This review will include an update to the company's existing strategic plan and will encompass consideration of continued internal growth by remaining independent, acquisitions, mergers, sale of the company, strategic alliances, joint ventures and financial alternatives.

Grey Wolf's board has engaged UBS Investment Bank as its independent financial advisor to assist it in conducting this review.

"Grey Wolf remains fully committed to enhancing shareholder value. After thorough consideration, Grey Wolf's board believed that the addition of Basic's complementary business and assets would have been an excellent strategic fit for us and would have created significant value. The board will now continue to consider other alternatives to enhance shareholder value and it will do so in an environment of strong commodity prices, a related strengthening in the onshore U.S. lower 48 drilling market and the potential inherent in Grey Wolf's asset base," said Thomas P. Richards, chairman, president and chief executive officer of Grey Wolf, in a news release.

Grey Wolf is a Houston-based provider of contract land drilling services. Basic Energy Services is a Midland, Texas-based well servicing rig contractor.

B/E Aerospace modifies term loan

B/E Aerospace announced some revisions to its term loan on Tuesday, including raising the size, adding a leverage-based step down in spread and reducing the original issue discount price, according to a fund manager.

The six-year term loan is now sized at $525 million, up from a most recent size of $475 million, the fund manager said. Earlier on in syndication, the term loan had been downsized by $100 million from $575 million after the company upsized its 10-year senior notes offering, which priced at par to yield 8½%, to $600 million from $500 million.

Pricing on the term loan was left unchanged at Libor plus 275 bps with a 3% Libor floor; however, a step down was added under which the spread can drop to Libor plus 250 bps if total leverage is less than 2.5 times, the fund manager continued. This step down can only take affect after delivery of a Dec. 31 compliance certificate.

As for the original issue discount on the oversubscribed term loan, it was tightened to 99 from the initially proposed 98½ level, the fund manager remarked.

B/E Aerospace's now $875 million senior secured credit facility (Ba1/BBB-), up from $825 million, still includes a $350 million five-year revolver priced at Libor plus 275 bps with a 3% Libor floor.

JPMorgan, UBS and Credit Suisse are the joint lead arrangers and joint bookrunners on the deal, with JPMorgan the administrative agent.

Covenants include an interest coverage ratio and a total leverage ratio.

Recommitments are due from lenders by the end of the day Wednesday and allocations are expected to go out on either Thursday or Friday.

Proceeds from the term loan and the bonds will be used to help fund the acquisition of Honeywell International Inc.'s consumables solutions distribution business and to repay existing bank debt. The revolver, which is expected to be undrawn at close, will be available for working capital and general corporate purpose.

B/E Aerospace is buying the Honeywell business for $800 million in cash plus $250 million in common stock or cash, at the company's option, although in no event will fewer than 6 million shares be issued if the value of the stock component is less than $250 million.

The newly announced term loan upsizing was a result of a drop in value of B/E Aerospace's stock price, the fund manager said.

"Part of the transaction is being funded by stock and since the stock price has declined, they needed to make up the difference," the fund manager added.

The original credit facility commitment letter provided for an up to $1.55 billion credit facility, comprised of a $350 million revolver and a $1.2 billion term loan. However, under the commitment letter, the actual amount of borrowings available under the credit facility were to be reduced to the extent that the company obtain certain other financing, which is what happened when the notes offering was announced.

Furthermore, when the company first announced the acquisition, it had said in a news release that the facility was going to be sized at $1.35 billion, divided into a $350 million revolver and a $1 billion term loan B.

The transaction is expected to close in the third quarter, subject to customary closing conditions, including U.S. antitrust notification and reports pursuant to the Hart-Scott-Rodino Act as well as German antitrust approvals.

The notes are not conditioned on the completion of the acquisition. If the acquisition is not completed, proceeds from the notes will be used to repay the term loan under the company's existing senior secured credit facility and for working capital and general corporate purposes. The company's existing $200 million revolver would be left in place.

B/E Aerospace is a Wellington, Fla.-based manufacturer of aircraft cabin interior products and an aftermarket distributor of aerospace fasteners.

Broadlane details surface

Broadlane came out with structural details on its proposed credit facility in preparation for the Thursday bank meeting that will launch the deal into syndication, according to a market source.

The $150 million facility is comprised of a $15 million revolver and a $135 million term loan B, the source said.

Details on price talk are not yet available, the source added.

Jefferies is the lead bank on the deal that will be used to help fund TowerBrook Capital Partners LP's acquisition of the company from Tenet Healthcare Corp. for about $155 million in cash.

Broadlane's senior management team will continue to retain a significant ownership interest in the company.

Other acquisition financing will come from $67.5 million of mezzanine debt.

Closing on the transaction is expected to occur in the third quarter, subject to approval by regulatory authorities and other conditions.

Originally, the credit facility was expected to launch on July 10, but it was pushed off by one week as a result of scheduling conflicts.

Broadlane is a Dallas-based technology-oriented health care services company.

Masonite slides

Over in trading news, Masonite's term loan B lost some ground on Tuesday as lenders were still mulling over the company's covenant amendment proposal, according to a trader.

The term loan B was quoted at 88½ bid, 89½ offered, down from 90¾ bid, 91½ offered, the trader said.

On Monday, Masonite held a call to discuss an amendment with lenders under which the credit agreement's total leverage and interest coverage ratios would be replaced with a minimum adjusted LTM 12 months EBITDA test, a market source said.

The amendment would also change pricing on the term loan to be based on a grid that can range from Libor plus 350 bps to 500 bps. Currently, the term loan is priced at Libor plus 200 bps.

In addition, a 3.25% Libor floor would be added to the loan.

Lenders would get a 50 bps amendment fee in return for their consents.

Last week, the company said that, based on a preliminary evaluation of its financial performance, it expected to be unable to comply with financial covenants for the quarter ended June 30 as a result of challenging conditions in the U.S. housing industry.

Masonite is a Tampa, Fla.-based manufacturer of residential and commercial doors.

General Motors reveals restructuring effort

General Motors' revolver was lower and its term loan was unchanged to weaker, depending on which trader was asked, after the company announced further restructuring and liquidity enhancing steps to deal with the weak U.S. economy, record high fuel prices, shifts in consumer vehicle preferences, and the lowest U.S. industry sales volumes in a decade.

The company's revolver was quoted at 82 bid, 83 offered, down from 83 bid, 84 offered, one trader said.

"You would think it would be higher on the news," the trader said regarding the revolver. "It didn't fall till later in the day. Initially after the news, it was unchanged at 83, 84 but then it came in with the rest of the market."

Meanwhile, the term loan was quoted at 79 bid, 81 offered by two traders; however, one of those traders said the paper was unchanged on the day and that no activity was seen in it, while the other trader said it was down about half a point from previous levels.

On the topic of the overall cash market performance, the third trader disagreed with the assessment that the entire market was down. "Cash market was a mixed bag. Didn't have a strong direction either way," the trader added.

On Tuesday morning, General Motors said that although it has ample liquidity to meet its 2008 funding requirements, it is taking additional measures to bolster liquidity to protect against a prolonged U.S. downturn, and that it anticipates it will report a significant second-quarter loss.

The newly announced liquidity actions include a combination of asset sales and capital market activities, and operating and related measures. The cumulative impact on cash through 2009 is projected to be about $15 billion.

At the end of the first quarter 2008, GM had liquidity of $23.9 billion, with access to U.S. credit facilities of an additional $7 billion.

Under this latest plan, General Motors hopes to raise additional liquidity of $4 billion to $7 billion through asset sales and financing activities.

The company is undertaking a broad global assessment of its assets for possible sale or monetization, which is expected to generate about $2 billion to $4 billion of additional liquidity.

Also, the company expects to continue to opportunistically access global markets to raise additional liquidity, and is initially targeting at least $2 billion to $3 billion of financing.

General Motors went on to say that it has gross unencumbered assets of over $20 billion, which could support a significant secured debt offering, or multiple offerings, that would far exceed the initial target.

Other aspects of the new initiatives include further salaried headcount reductions in the United States and Canada in the 2008 calendar year, health care coverage for U.S. salaried retirees over 65 will be eliminated, no new base compensation increases for U.S. and Canadian salaried employees for the remainder of 2008 and 2009, and no annual discretionary cash bonuses for the company's executive group in 2008.

These benefit changes, salaried headcount reductions and other related savings will result in an estimated reduction in cash costs of more than 20%, or $1.5 billion in 2009.

Additional structural cost reductions of about $2.5 billion are expected in General Motors North America, partially achieved through further adjustments in truck capacity and related component, stamping and powertrain capacity.

The company will reduce and consolidate sales and marketing budgets, and engineering spending in 2008 and 2009 will be held at 2006 to 2007 levels. These operating actions, combined with the benefits of the 2007 General Motors-UAW labor agreement, are targeted to reduce North American structural cost from $33.2 billion in 2007 to about $26 to 27 billion in 2010, a reduction of $6 to 7 billion.

In addition, the company is revising its capital spending plan and reducing about $1.5 billion in expenditures versus prior plans, and spending for non-product programs will also be significantly reduced, while powertrain spending will be increased to support the development of alternative propulsion and fuel economy technologies and small displacement engines.

General Motors also said that aggressive actions are being taken to improve working capital by about $2 billion in North America and Europe, primarily related to the reduction of raw material, work-in-progress and finished goods inventory levels as well as lean inventory practices at parts warehouses.

Other plans include suspending future dividends on common stock which is expected to improve liquidity by about $800 million through 2009 and deferring about $1.7 billion of payments that had been scheduled to be made to a temporary asset account over the balance of 2008 and 2009 for the establishment of the new UAW VEBA.

For the liquidity planning purposes, the company used assumptions of U.S. light vehicle industry volumes of 14 million units in 2008 to 2009, lower U.S. share of about 21% and continued elevated average oil price estimates ranging from $130 to $150 per barrel by 2009.

"We are responding aggressively to the challenges of today's U.S. auto market," said Rick Wagoner, chairman and chief executive officer, in a news release. "We will continue to take the steps necessary to align our business structure with the lower vehicle sales volumes and shifts in sales mix. We remain committed to bringing to market great products that target changing consumer preferences for more fuel-efficient vehicles.

"The actions announced today are difficult decisions, but necessary to respond to the current auto market conditions," Wagoner continued in the release. "Even under conservative planning scenarios, GM is well-positioned to withstand the U.S. market downturn and emerge a stronger company. We have a solid position in the rapidly growing emerging markets, a global operating framework that allows us to respond to changes in the U.S. market, a commitment to technology leadership, and an ever stronger and competitive product lineup."

General Motors is a Detroit-based automotive company.

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