Hercules Offshore term loan B to be sized at up to $900 million

By Sara Rosenberg

New York, June 4 - Hercules Offshore Inc.'s proposed six-year term loan B will carry a size of up to $900 million, as opposed to the previously expected $1.1 billion, since the company is generating "tons of cash," according to a market source.

The final size of the term loan B will be determined around closing at the end of June, the source remarked.

As was previously reported, the term loan, B, along with a $150 million five-year revolver, will officially be launched into syndication with a bank meeting on Tuesday.

UBS is the lead bank on the up to $1.05 billion deal. Other banks involved include Amegy Bank, Comerica Bank, Credit Suisse, Deutsche Bank, Jefferies Finance LLC and JPMorgan.

According to filings with the Securities and Exchange Commission, pricing on the facility is expected to range somewhere between Libor plus 175 and 250 basis points, based on where ratings fall out. If corporate ratings are Ba2/BB, then pricing will be Libor plus 175 bps, If ratings are Ba3/BB-, then pricing will be Libor plus 200 bps. If ratings are B1/B+, then pricing will be Libor plus 225 bps. If ratings are lower than B1/B+, then pricing will be Libor plus 250 bps.

Financial covenants will include maximum leverage and fixed-charge coverage.

Proceeds will be used to help fund the acquisition of Todco for an average total consideration equal to 0.979 shares of Hercules Offshore and $16.00 in cash for each share of Todco common stock outstanding, or an estimated 56.9 million shares of Hercules Offshore and cash of $930.7 million. The transaction is valued at $2.3 billion.

In addition to financing the acquisition, proceeds from the facility will be used to repay in full and terminate Hercules' existing senior secured term loan facility and refinance Todco's revolver.

Closing of the acquisition is expected to take place in mid-2007, subject to regulatory approvals and other customary conditions, as well as both Hercules Offshore and Todco shareholder approvals.

Hercules Offshore is a Houston-based operator of jack-up drilling rigs and liftboats. Todco is a Houston-based provider of contract oil and gas drilling services.

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