CMS Energy completes $1.3 billion in credit facilities, providing sufficient liquidity for operations

By Sara Rosenberg

New York, July 15 - CMS Energy Corp. closed on $1.3 billion in credit facilities for CMS Energy and its CMS Enterprises and Consumers Energy subsidiaries.

The new loans will give liquidity needed for operations while the company waits for a new audit opinion, company officials said during a conference call Monday, adding that after pending asset sales and equity issuances are completed following the audit opinion the company should be in good shape in 2003.

The Dearborn, Mich. energy company plans on approximately $500 million more in asset sales by the end of 2002 with about 10 deals pending, approximately $250 million in preferred equity sales in 2002 and approximately $395 million in asset sales in 2003, company officials said.

Of the total $1.3 billion in loans, $745.8 million is for CMS Energy and $550 million is for Consumer Energy. All 21 banks agreed to the amendment of credit facility agreements and six banks agreed to the new $150 million CMS term loan, officials said.

CMS Enterprises is the borrower of a new $150 million senior secured term loan that is guaranteed by CMS Energy, CMS Generation and CMS Gas Transmission. The loan matures on Dec. 13, 2002 and has an interest rate of Libor plus 300 basis points, according to the term sheet. Security is a first lien on all of the capital stock of major direct and indirect domestic subsidiaries, including Panhandle Eastern Pipe Line Co. but excluding the subsidiaries of Panhandle. Proceeds will be used for general corporate purposes. There is no amortization schedule and mandatory prepayment is 100% of net cash proceeds from asset sales and debt or equity issuances.

CMS Energy's consolidated debt to consolidated EBIDTA is limited to no more than 5.75 to 1.0 for the preceding four quarters under the loan agreement and energy cash dividend to interest expense can't be less than 1.25 to 1.0.

Salomon Smith Barney acted as lead arranger and bookrunner and Citicorp USA Inc. was administrative agent.

CMS Energy renewed its $295.8 million senior secured revolver that is guaranteed by CMS Energy, CMS Generation and CMS Gas Transmission. The revolver amount is frozen at the amount of current outstanding borrowings, the company said during the conference call. The loan matures on March 31, 2003 and has an interest rate of Libor plus 300 basis points. Security is a second lien on all capital stock of direct and indirect subsidiaries including Panhandle and a first priority lien on all capital stock of Enterprises and all receivables and notes payable from Enterprises and its major subsidiaries. Proceeds will be used for general corporate purposes.

Following the payment in full of the Enterprises term loan, mandatory prepayment is a permanent reduction by 100% of net cash proceeds up to $250 million from asset sales and the issuance of debt or equity by CMS and its subsidiaries excluding Consumers and 75% of proceeds thereafter, the term sheet said.

CMS Energy's consolidated debt to consolidated EBIDTA is limited to no more than 5.75 to 1.0 for the preceding four quarters under the loan agreement and energy cash dividend to interest expense can't be less than 1.25 to 1.0.

Salomon Smith Barney was joint arranger and bookrunner and Barclays Bank PLC was administrative agent and joint arranger.

CMS Energy also renewed a $300 million senior secured revolver with an interest rate of Libor plus 300 basis points, changing the maturity date to Dec. 15, 2003. CMS Energy, CMS Generation and CMS Gas Transmission guarantee the loan. Security is a second lien on all capital stock of direct and indirect subsidiaries including Panhandle and a first priority lien on all capital stock of Enterprises and all receivables and notes payable from Enterprises and its major subsidiaries. Proceeds will be used for general corporate purposes.

After payment in full of the Enterprises and the CMS Energy Short-Term facilities, mandatory prepayment is 50% of net cash proceeds from asset sales in excess of $100 million. CMS Energy's consolidated debt to consolidated EBIDTA is limited to no more than 5.75 to 1.0 for the preceding four quarters under the loan agreement and energy cash dividend to interest expense can't be less than 1.25 to 1.0.

Salomon Smith Barney was joint arranger and bookrunner and Barclays Bank plc was administrative agent and joint arranger.

Consumers Energy is the borrower of a $250 million 364-day senior secured revolving credit facility with an interest rate of Libor plus 200 basis points and a maturity date of July 11, 2003. Security is first mortgage bonds and proceeds will be used for general corporate purposes. Financial covenants include the limitation of total consolidated debt to total consolidated capitalization at no more than 0.65 to 1.0 for the preceding four quarters under the loan agreement and consolidated EBIT to consolidated interest coverage can be no less than 2.0 to 1.0, the term sheet said.

Bank One Capital Markets was the arranger and Bank One was the administrative agent.

Consumers Energy is also the borrower of a new $300 million senior secured term loan with an interest rate of Libor plus 250 basis points and a maturity date of July 11, 2003 with the option to extend for one-year. Security is first mortgage notes and proceeds will be used for general corporate purposes. At closing $200 million of the loan was funded, with the remaining $100 million to be funded no sooner than Aug. 31 since the company needs to get formal approval for additional first mortgage bonds, the company said in the conference call. Mandatory prepayment on the loan is 50% of net cash proceeds from asset sales after the first $100 million asset sales. Financial covenants include the limitation of total consolidated debt to total consolidated capitalization at no more than 0.65 to 1.0 for the preceding four quarters under the loan agreement and consolidated EBIT to consolidated interest coverage can be no less than 2.0 to 1.0.

Salomon Smith Barney was the arranger and Citicorp USA Inc, was the administrative agent.

All of the CMS facilities are expected to be fully drawn with some proceeds going towards the repayment of a $300 million revolver that expired, company officials said. Consumers Energy currently has no outstanding borrowings under its previous credit facilities and those credit lines will be cancelled, officials added.

As a result of dividend restrictions in the credit facilities agreements, the Dearborn, Mich. energy company plans to reduce the common dividend by approximately 50%, to an annual rate of 72 cents per share.

"Completing these new credit facilities clears the way for us to continue restoring CMS Energy's financial health. While cutting the dividend is regrettable, it is a necessary measure to improve our cash position," said Ken Whipple, chairman and chief executive officer in a press release.

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