CenterPoint Energy $420 million term loan taken out by new $1.31 billion facility

By Sara Rosenberg and Paul A. Harris

New York, Nov. 8 - CenterPoint Energy Houston Electric's $420 million three-year senior secured term loan (Ba1) was removed from the market, according to a syndicate source, since the company reached an agreement with Berkshire Hathaway Inc. and Credit Suisse First Boston on a $1.31 billion senior secured credit facility.

The term loan was needed to repay senior debentures that were coming due this month. If the company failed to acquire this financing, CenterPoint Energy Inc. would lose its recently obtained $4.7 billion 364-day credit facility.

Syndication of the $420 million term loan met some obstacles, causing the syndicate to increase the interest rate by 300 basis points to Libor plus 750 basis points earlier this week in an attempt to gain investor interest. The bank debt was also selling at a three-point discount and there was call at 102 in year one and at 101 in year two.

"This deal is one of the fallen angels in a space that is not in favor with investors," a sell-side source previously told Prospect News.

Credit Suisse First Boston, Deutsche Bank and Bank of America were the lead banks on the Houston Electric $420 million deal.

Changes to the credit facility came on the heels of a downgrade of CenterPoint Energy Inc. to junk status by Moody's Investor Service, affecting $12 billion of debt. Ratings lowered include CenterPoint's senior unsecured debt to Ba1 from Baa2, CenterPoint Energy Resources Corp.'s senior unsecured debt to Ba1 from Baa2 and CenterPoint Energy Houston Electric to Baa2 from A3, with a Baa2 secured rating assigned to its new $850 million secured bank facility.

Moody's said the downgrades reflected the limited financial flexibility experienced by the holding company given delays in spinning off its 80% owned subsidiary, Reliant Resources, Inc. (Ba3) which it finally accomplished Sept. 30.

The new $1.31 billion loan was obtained at a steeper price to the company, carrying an interest rate of Libor plus 975 basis points, 225 basis points higher than where the $420 million was priced. The credit agreement has a three-year term and is secured by the electric utility's second mortgage bonds.

Proceeds will be used to repay all amounts outstanding under Houston Electric's existing $850 million bank credit facility, to repay $400 million of debt, which includes $300 million of senior debentures of CenterPoint Energy FinanceCo II LLP maturing on Nov. 15 and $100 million of debt of CenterPoint Energy, Inc., and to pay any fees and related expenses.

CenterPoint Energy Houston Electric is an electric transmission and distribution subsidiary of Houston-based domestic energy delivery company, CenterPoint Energy Inc.

In follow up news, Constar International's bank loan is said to be struggling, according to a market professional.

The bank loan and the bond deal need the equity to get done. And the equity needs to get done probably at the low end of the range, and no worse, or it will going to create some other problems within the company, the professional explained. Originally, the range on the IPO was $15 to $18 and then the company reduced it to $12 to $15.

The initial public offering, which was pushed off from Wednesday to Thursday night, was not done. The bond market is closed on Monday, so Constar may try to re-market the equity deal on Tuesday and price the bond on Wednesday.

Furthermore, if the equity gets done at the low end of the range the bank deal may be flexed up, he added.

Currently, Constar is in the market with a $250 million credit facility (B1/BB-) that consists of a $150 million seven-year term loan B with an interest rate of Libor plus 325 basis points and a $100 million five-year revolver with an interest rate of Libor plus 300 basis points. Citibank and Deutsche Bank are the lead banks on the deal.

Proceeds, combined with the high yield offering and the IPO, will be used to help fund the partial spin off from Crown Cork & Seal.

Constar is a Philadelphia producer of PET plastic containers for food and beverages.

Meanwhile in the secondary, Tenet Healthcare Corp.'s bank debt saw a dramatic drop due to recent news, including management changes, lawsuits and audits. The company's multi-year tranche is being bid around 85 and the offer is around 90. Previously, the debt was quoted in the high 90s region.

On Wednesday, the company announced that it received an audit request from the Kansas City office of the Office of Audit Services of the Department of Health and Human Services. The objective of the audit is to determine whether outlier payments to Tenet hospitals were paid in accordance with Medicare laws and regulations.

"In the past week, some have insinuated that Tenet hospitals did not comply with Medicare rules governing outlier payments," said Jeffrey C. Barbakow, chairman and chief executive officer, in a news release. "We are pleased to cooperate with this audit, as we are confident that it will demonstrate that our hospitals did, in fact, obey the rules."

On Thursday, the company announced that it restructured its management team and that Trevor Fetter was named president, reporting to chairman and chief executive officer Jeffrey C. Barbakow. The company's chief operating officer, Thomas B. Mackey, retired and David L.Dennis, chief corporate officer and chief financial officer, resigned. Stephen D. Farber was promoted to chief financial officer from his previous position as treasurer and senior vice president corporate finance.

The company also faces shareholder lawsuits.

Tenet Healthcare is a Santa Barbara, Calif. hospital chain.

Wyndham International Inc.'s bank debt remained in the low 70s following the announcement of some additional asset sales on Friday.

The company sold the Ramada Inn and Conference Center located in Nashville, Tenn., to a joint venture between Montclair Hotel Investors and Oaktree Capital Management for $8.4 million. Proceeds from the sale are being used to pay down debt.

"It's only $8 million," a trader said, explaining that the net proceeds are too small to affect the secondary trading levels of the Dallas hotel and resort operator's bank debt.

"We are pleased with the momentum we have in selling non-strategic assets, with this representing our 16th asset sale agreement in the past two months. We are progressing with our plan to sell non-strategic assets and our team remains focused on operating proprietary branded hotels and resorts," stated Fred J. Kleisner, Wyndham's chairman and chief executive officer, in a news release.

Also Friday, Qwest Communications International Inc. said it closed the first phase of the sale of its QwestDex business to The Carlyle Group and Welsh, Carson, Anderson & Stowe.

Financing obtained by the purchaser, Dex Media East LLC, included a $1.49 billion credit facility (Ba3/BB-) via JPMorgan, Bank of America, Deutsche Bank, Lehman Brothers and Wachovia Securities. The facility included a $100 million revolver at Libor plus 300 basis points, a $690 million term A at Libor plus 300 basis points and a$700 million term B at Libor plus 400 basis points.

Qwest said it will use part of the $2.75 billion of proceeds to pay down its credit facility to $2.0 billion.

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