Banks Come To Bargaining Table On Big Energy Loans
By NICOLE BULLOCK
Of DOW JONES NEWSWIRES
NEW YORK -- As cash-strapped energy companies face massive loans coming due this year, banks are driving tough bargains in the negotiations to restructure or refinance the debt.
But while they are forcing companies to put up collateral, sell assets or stick to tight payback schedules, banks seem more willing to reach a deal and are backing away from pushing companies into bankruptcy.
"What we are seeing generally is creditors who are concerned about their exposure, but willing to sit down and find a solution rather than put companies into bankruptcy," said George Bilicic, a managing director and head of the energy group at Lazard LLC.
"As part of the effort of banks to work with companies facing financial issues, creditors often request improved terms and collateral in exchange for an extension of maturities" he said.
Bilicic has advised companies including Allegheny Energy Inc. (AYE) on their restructurings.
Among the companies with billion-dollar bank facilities still to come due this year are El Paso Corp. (EP), Reliant Resources Inc. (RRI), Mirant Corp. (MIR), Calpine Corp. (CPN) and Dynegy Inc. (DYN).
Unless the funding requirements grossly outweigh cash flow, bankers say the growing consensus is to roll over short-term debt in the hope that in time, the company will have access to the capital markets or obtain better prices for asset sales to pay down the debt. It's also in the banks' interest to try to come up a revised facility since the companies already have their money.
"Am I better off forcing them to sell assets at the worst part of the cycle or getting secured and hoping that, since it's a cyclical business, things will improve in the next three years and I'll able to get out," said one banker, who has worked on several of the sector's loan restructurings. "It's better to ride the wave than to force them into bankruptcy."
This year, companies like Allegheny Energy and CenterPoint Energy Inc. (CNP) have managed to avoid default and even bankruptcy by giving lenders concessions.
After defaulting on existing loans late last year, Allegheny in February obtained a new $2.4 billion credit facility by securing some of the new loans with almost all the assets at its power generation unit Allegheny Energy Supply and agreeing to a tight amortization schedule.
CenterPoint Energy Inc. (CNP) in February amended a $3.85 billion credit facility, extending the term to 2005 and eliminating $1.2 billion in payments due this year. In return, CenterPoint gave banks the option to buy up to 10% of the company if it doesn't pay down the loan according to schedule, among other things.
While each company faces different challenges, the successful restructurings and refinancings so far are providing a blueprint for ways that lenders and companies can iron out new terms to keep the companies afloat and allow lenders to manage their exposure.
After Enron's collapse, trading scandals, accounting inquiries and sagging power prices have roiled the power industry and sharply increased the risk profile of these once investment-grade, dividend-paying utilities. For some, capital markets access has vanished.
At the same time, large Wall Street-focused firms, which have been hit by souring corporate loans in other industries like telecoms, have become more rigorous in their lending requirements. The amount of exposure they can have to these now more speculative companies also is far smaller.
"About 25% of the capital is being taken out of this business," Bill Repko, a managing director in J.P. Morgan's restructuring group, estimated. "So, if you have a $4 billion bank loan minus about 25% of the capacity, you're missing about $1 billion in a capital constrained environment. That's a real challenge."
Companies are turning to other sources to pick up the slack, including corporate bonds, convertible bonds and institutional investors, such as hedge funds.
Warren Buffett was one of the first to step into this troubled market, putting up loans for CenterPoint and Williams Cos. (WMB). El Paso, Williams, Centerpoint and TXU Corp. (TXU) - via units - also have managed to raise some capital in the bond market.
Eyes On Reliant's Efforts To Restructure Bank Debt
The next big restructuring for the bank market looks to be a massive bank facility in the works for Reliant. It's trying to consolidate a jumbo $2.9 billion Orion bridge loan and some other debts into a $5.9 billion bank facility. An extension on the maturity of the Orion loan expires Friday.
The company has said it needs 100% lender approval for the restructuring transaction - a common formula in credit facilities and one that has proven a sticking point in some other restructuring efforts.
The restructuring of Allegheny Energy's bank debt and a Centerpoint deal last year were held up by a few banks who refused to sign up to a new deal. The syndicate is hesitant to release any single bank, no matter how small its commitment, for fear of setting a precedent.
"The challenge is that a smaller player thinks it can be taken out, or there's a hedge fund in the deal, who has perhaps shorted the equity and doesn't have the same interest as the rest of the bank group, or groups with credit derivatives who aren't incentivized at all to play ball because they are hedged," the banker said.
These loans were typically syndicated to a wide and myriad group of lenders when the companies were investment-grade. Getting all the banks involved to agree to amended terms or a new facility, now that the company's circumstances have changed dramatically, remains a serious risk for upcoming renegotiations.
El Paso, considered by bankers to be asset-rich and well-positioned to repair its debt-bloated balance sheet, has made headway in restructuring debt thanks to a new $1.2 billion secured loan, some bond deals through units and agreements to sell more than $1.5 billion in assets.
But it still has two big bank loans maturing this year. It has a $3 billion bank facility due in May, which has a one-year term out option, and a $1 billion facility due in August. The company plans to pay off the latter when it matures, a spokesman said.
Among the other loans coming due this year, Calpine has a $1 billion bank deal due in May, Dynegy has $1.3 billion in credit facilities due in April and May and Mirant has a $1.125 billion term loan due in July.
Officials for the companies declined to comment on the details of their bank loan negotiations.
-By Nicole Bullock, Dow Jones Newswires, 201 938 2039; nicole.bullock@dowjones.com
Updated March 25, 2003 3:31 p.m |
