International Financing Review March 21 2020 69LOANS LEVERAGED LOANSDUKE ENERGY BORROWS US$2bnEnergy and electric utility company DUKE
ENERGY has signed a new US$1.5bn 364-day
term loan.
The company drew down on the full
US$1.5bn and also borrowed the remaining
US$500m available under its US$1bn three-
year revolving credit agreement.
The total US$2bn borrowed will be used
by the company to reduce outstanding
commercial paper and fund general
corporate purposes.
PNC Bank is administrative agent on the
term loan. PNC, Scotiabank, Bank of China,
SunTrust, US Bank, KeyBank, Sumitomo Mitsui
and Wells Fargo are joint lead arrangers and
joint bookrunners on the term loan.Pricing on the term loan is 65bp over Libor.
The revolving credit facility was signed in
May 2019.LATIN AMERICA
BRAZIL
PETROBRAS DRAWING US$8bnState-controlled oil company PETROBRAS has
asked its lenders to disburse approximately
US$8bn from the company’s revolving
credit facilities.Petrobras said the bank loans would
improve its liquidity amid the coronavirus
pandemic and extreme volatility in oil
PRICESû/THERûMEASURESûTOûIMPROVEûCASHmOW û
including cutting expenses, are under
consideration.
The price of US crude oil futures on the
Nymex opened at US$24.73 on Friday, down
from approximately US$45 at the beginning
OFûTHISûMONTH ûACCORDINGûTOû2ElNITIVûDATA
The oil producer raised US$7.6bn through
two revolving credit facilities in the past two
years.
In March last year, Petrobras raised a
53BNûlVE
YEARûREVOLVERûWITHûûBANKSû
at 150bp over Libor and in March 2018, the
COMPANYûSIGNEDûAû53BNûlVE
YEARû
revolver with 17 lenders at 170bp over Libor.
The company also signed a US$750m 10-
year credit line with Santander in November
2018.LEVERAGED LOANS
UNITED STATES
MALLINCKRODT PULLS TLOpioids maker MALLINCKRODT has pulled a
US$690m term loan and dropped plans to
amend its 2017 credit agreement.
The loan, which was set to mature in
March 2024, was offered at 650bp over
,IBOR ûWITHûAûûmOORû0ROCEEDSûWEREû
slated to redeem the company’s US$615m
unsecured notes due April.
The loan offering and amendment were
intended to help Mallinckrodt execute its
global opioids settlement agreement, in
addition to addressing the near-term
maturity of its debt.
“After receiving informal
communications from advisers to the lender
parties ... that the lender parties did not
expect to fund the new term loans, the
company does not expect that the credit
agreement will be amended or new term
loans will be obtained, and is seeking to
engage in discussions with certain debt
holders of the company regarding potential
RElNANCINGûALTERNATIVES vûTHEûCOMPANYûSAID
Mallinckrodt said that it would pay out
US$1.6bn to resolve all opioid-related claims
against the company. The funds will be used
to cover costs related to opioid-addiction
treatment, and the company’s generics unit
WILLûlLEûFORû#HAPTERûûBANKRUPTCYû
protection.
Mallinckrodt said it received a court
decision on Monday regarding its lawsuit
against the US Department of Health andPrivate credit markets grind
to a halt
US MIDDLE MARKET Market has yet to experience a downturn of global scalePrivate credit markets have frozen, bringing
to a standstill both dealflow and the ability
to land new financing for small and medium-
sized companies, as fears from the coronavirus
outbreak spread across the US and rattle equity
markets worldwide.
The stoppage poses a test for an asset class
that has grown exponentially since the 2008
financial crisis as a source of funds for borrowers
in the middle market, and has yet to experience a
downturn on a global scale.
Direct lenders have taken on an integral
role for many businesses, providing financing
to private equity managers to complete
acquisitions. With the growth of alternative
assets, private equity firms have purchased a
substantial number of companies post-global
financial crisis, many bankrolled by direct
lenders.
A handful of deals that were signed up in the
past two weeks have been tabled, a lawyer said.
Another transaction that closed recently only
got over the finish line because it was too late to
renege on the deal, the lawyer said.
“Now I’m just waiting for the wave of
restructurings.”
In the first two months of the year direct
lenders were eager to commit to transactions, a
direct lender said, but his firm’s pipeline of deals
has since slowed significantly.
Many private equity firms looking for new
companies to buy have hit the pause button,
the direct lender said. Sponsors are adopting a
wait-and-see approach, unsure how the fallout
from the coronavirus will affect the finances of a
potential acquisition target.OVERCAUTIOUS?
Some portfolio companies have started
borrowing or drawing down their revolving credit
facilities. Revolvers are not often maxed out, so
borrowing the full capacity is generally a sign
of anxiety about corporate funding or fears of a
liquidity crunch.
The direct lender said decisions to draw down
facilities were made out of an abundance of
caution.
“We’ve seen some of our portfolio [companies]
draw down their revolver,” the direct lender
said. “It’s like buying extra milk or bread in the
supermarket; it’s probably not necessary.”
How private credit managers finance
themselves is important too because it can
impact whether they have the capital to meet
their obligations. Revolvers and delayed-draw
term loans – facilities normally used by larger
companies backed by private equity firms to
acquire smaller companies – are unfunded
commitments offered as part of a larger
financing package.
Because revolver and delayed-draw term
loans are not funded, lenders need to make sure
they have enough money in reserves to meet
commitments. Lenders have faced liquidity
problems when there is a rush to draw down
revolving credit capacity.
One bank has put on hold any new loans for
business development companies, a type of
private credit fund, a banker said. The lender is
looking at each BDC’s portfolio and seeing where
the loans are valued and how this impacts the
BDC’s liquidity.
Andrew Hedlund9 IFR Loans 2325 p 55 - XX.indd 69 20 / 03 / 2020 19 : 00 : 40