Precision Drilling enhances facility structure; GM, Ford slide as investors trying to figure out bailout

By Sara Rosenberg

New York, Dec. 9 - Precision Drilling Trust made some structural improvements to its credit facility on Tuesday, including revising amortization on the term loan B and increasing the excess cash flow sweep.

Meanwhile, over in the secondary market, General Motors Corp. and Ford Motor Co. both saw their term loans drop on concerns over what the proposed government bailout would mean for lenders, and LCDX 10 and the cash market were weaker with equities.

Precision Drilling tweaks terms

Precision Drilling made some adjustments to its credit facility as the banks are working to fill the deal out before its scheduled close on Dec. 23, according to a market source.

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

In addition, 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.

Furthermore, 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.

Precision carve-out will be up to $75 million

Also on Tuesday, Precision Drilling revealed to lenders that its proposed term loan B carve-out, which will have a higher spread and a lower original issue discount, will carry a size of up to $75 million, the source remarked.

And, in the revised estimated sources and uses chart and pro forma capitalization chart that lenders were able to view on Tuesday, the term loan B carve-out was estimated to be $50 million for the purpose of making various calculations.

Previous speculation had the carve-out sized anywhere from $75 million to $100 million.

Pricing on the carve-out will be Libor plus 725 basis points with an original issue discount of 85.

The remaining term loan B is talked 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 is being done for certain CLO investors that couldn't get involved in the deal at a discount of 80. This piece of debt with the tighter discount allows these investors to participate in the transaction.

Precision pro rata done

As was already reported, Precision Drilling's $800 million of pro rata bank debt is fully subscribed, helped along by a very successful early round of syndication to senior managing agents.

Both the $400 million five-year revolver and the $400 million five-year term loan A are currently being talked at Libor plus 400 bps.

RBC Capital Markets and Deutsche Bank are the joint lead arrangers and bookrunners on the $1.2 billion senior secured credit facility (Ba1/BBB-), with RBC the administrative agent and left lead, Deutsche the syndication agent, and HSBC and TD Securities the co-documentation agents.

Financial covenants include 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.

Allocations expected next week

Precision Drilling is currently anticipating communicating allocations to lenders on Dec. 19, after posting final loan documents on Intralinks on Dec. 17, the source remarked.

Proceeds from the 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.

GM, Ford fall

Switching to the secondary market, General Motors and Ford weakened during Tuesday's trading session as the contemplated government aid plan is causing some investors to wonder over the bank debt's fate, according to a trader.

General Motors, a Detroit-based automaker, saw its term loan quoted at 44 bid, 46 offered, down from 50 bid, 53 offered, the trader said.

And, Ford, a Dearborn, Mich.-based automaker, saw its term loan quoted at 41½ bid, 44 offered, down from 46 bid, 47 offered, the trader continued.

"Doubt in peoples' mind how the government can be number one claim, if there's ways to get around the covenants in the loans. Loan holders are trying to figure out if there's a way for this to happen without being taken out," the trader explained.

"Also, some profit taking there too," the trader added.

Autos may get $15 billion

As was previously reported, Congress is currently working on a rescue plan for the auto companies that would provide around $15 billion in short-term financing, with most of that going to General Motors and Chrysler LLC, which appear to be in the most immediate danger of possibly filing for bankruptcy.

Last week, the auto companies all presented plans to Congress, pleading cases for government aid so that they could hopefully return to profitability.

General Motors had requested access to $18 billion in funds, comprised of a $12 billion bridge loan - of which it wants $4 billion this month - and a $6 billion revolving line of credit, Chrysler asked for $7 billion in loans from the government, and, Ford requested access to an up to $9 billion bridge loan in case the current economic crisis worsens or there is a bankruptcy of a major competitor.

LCDX, cash soften

LCDX 10 and the cash market both ended the session at lower levels in sympathy with the stock market, according to a trader.

The index was quoted at 75.35 bid, 75.65 offered, down from 76.50 bid, 76.85 offered, the trader said.

As for cash, the market started unchanged to up a quarter of a point, but then it "faded as equities faded" to end the day down a half a point to a point, the trader remarked.

Nasdaq closed down 24.40 points, or 1.55%, Dow Jones Industrial Average closed down 242.85 points, or 2.72%, S&P 500 closed down 21.03 points, or 2.31%, and NYSE closed down 117.22 points, or 2.08%.

Wabtec closes

In other news, Wabtec Corp. closed on its new $500 million credit facility, according to a news release.

The facility consists of a $200 million term loan and a $300 million revolver.

PNC, JPMorgan and RBS acted as the lead arrangers on the deal.

Proceeds were used to help fund the roughly $300 million cash acquisition of Standard Car Truck, a Park Ridge, Ill.-based rail equipment supplier.

Wabtec is a Wilmerding, Pa.-based provider of technology-based products and services for the rail and transit industry.

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