Key Energy new $400 million term loan starts at Libor plus 300 bps

New York, June 2 - Key Energy Services Inc.'s new $400 million seven-year term loan has an initial interest rate of Libor plus 300 basis points.

The $65 million five-year revolver begins at Libor plus 275 basis points, according to an 8-K filing with the Securities and Exchange Commission.

The tranches are part of a $550 million back-stop facility from Lehman Brothers Inc. and Lehman Commercial Paper Inc. announced Wednesday.

The facility also includes an $85 million five-year pre-funded letter-of-credit facility.

Pricing on the loan will step up by 50 basis points on Dec. 31, 2005 and June 30, 2006 if Key Energy has not provided audited and unaudited financial statements. It will also increase by 25 basis points if more than $275 million of term loans are outstanding.

Once the loans are rated, pricing will be set by a grid varying from Libor plus 225 to 275 basis points for the term loan and Libor plus 200 to 250 basis points for the revolver (see Table 1).

The revolver has an unused fee of 50 basis points and the term loan has an unused fee of 100 basis points.

Key Energy will use the loan if it elects or is required to refinance any or all of its senior secured credit facility, its 6.375% senior notes due 2013 or its 8.375% senior notes due 2008.

The commitment for the back-stop facility expires on Dec. 31.

The term loan amortizes by 1% per year.

Under the terms of the facility, Key Energy will be required to meet financial covenants setting a minimum interest coverage ratio of at least 3.0:1 and maximum total leverage ratio of not more than 3.5:1 until the period ending March 31, 2006; 3.0:1 for the period ending March 31, 2006 until the period ending Sept., 30, 2006; and 2.75:1 for the period ending Sept. 30, 2006 and later.

Key Energy is a Midland, Texas-based rig-based, onshore well service company.

Table 1.

Libor pricing grid for Key Energy's new credit facility

Ratings Revolver margin Term loan margin

Ba3 or higher and BB- or higher 200 bps 225 bps

Ba3, B1 and/or B+, BB- 225 bps 250 bps

B1 or lower and B+ or lower 250 bps 275 bps

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