CenterPoint Energy Houston Electric term loan flexed up 300 basis points

By Sara Rosenberg

New York, Nov. 5 - CenterPoint Energy Houston Electric's $420 million three-year senior secured term loan underwent a major change in pricing on Tuesday as the interest rate was flexed up by 300 basis points to Libor plus 750 basis points, according to a syndicate source.

In addition, the bank debt is now selling at 97, compared to the original selling price of 971/2, the syndicate source said. The paper contains call protection 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 told Prospect News. "I figure they polled investors and decided this is what they needed to get it done."

This action follows Monday's 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 reflect 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.

New facilities available to CenterPoint total $4.7 billion in 364-day bank financing, due in October 2003. However, the facilities ($3.850 million available to the parent and $850 million available to the Houston Electric) mature on Nov. 15 unless the $420 million is arranged at Houston Electric to replace a maturing bond. Both facilities contain mandatory commitment reductions next year ($600 million in each of February and June of 2003 for the parent, and $450 million in April for the Houston Electric.), according to Moody's.

The downgrade will result in a 50 basis point increase on the interest rates of the recently obtained $4.7 billion credit facility.

"Despite today's action by Moody's, we remain focused on effectively managing our companies as we move toward the 2004 recovery of the investment in our generating units," said David M. McClanahan, CenterPoint Energy's president and chief executive officer, in a news release responding to Moody's downgrade.

"In 2004 CenterPoint Energy intends to sell all of its generating assets and, under the Texas electric restructuring law, will be entitled to recover all of its stranded investment. At that time the company will reduce its debt to levels more typical for combination gas and electric utilities," the news release said.

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

Proceeds from the loan will be used to refinance senior debentures that are coming due in November.

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

R.H. Donnelley's directory deal is expected to launch on Thursday, now that the Dex Media East LLC deal has cleared the market. The $1.55 billion credit facility consists of a $125 million six-year revolver with an interest rate of Libor plus 350 basis points, a $575 million six-year term loan A with an interest rate of Libor plus 350 basis points and an $850 million 71/2-year term loan B with an interest rate of Libor plus 400 basis points, according to market sources, which is basically in line with pricing on the Dex Media East deal.

In comparison, the Bell ActiMedia Inc. C$1.6 billion loan is priced slightly lower with the C$100 million six-year revolver and the C$400 million six-year term loan A at Libor plus 300 basis points, and the C$1.1 billion eight-year term loan B at Libor plus 350 basis points. CIBC World Markets, Scotia Capital and Credit Suisse First Boston are the lead banks on the deal, which will help finance the acquisition of the BCE directories business by Kohlberg Kravis Roberts and the Teachers' Merchant Bank.

Bear Stearns, Deutsche and Salomon Smith Barney are the lead banks on the R.H. Donnelley deal, which will be used to help fund the acquisition of Sprint Corp.'s directory publishing business and refinance debt.

R.H. Donnelley is a Purchase, N.Y. marketer of yellow pages advertising.

In other news, Centerpulse Ltd. closed on its $635 million credit facility (Ba2/BB) split between dollars and euros on Monday, according to a syndicate source. UBS Warburg was the lead bank on the deal.

The loan consists of a $300 million two-year term loan A with an interest rate of Libor plus 275 basis points and a $335 million five-year term loan B with an interest rate of Libor plus 350 basis points.

Proceeds are being used to fund a trust for legal settlements.

Centerpulse is a Switzerland-based developer, producer and distributor of medical implants and biological materials for cardiovascular and orthopedic markets.

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