Walter Industries sets Monday launch for new $1 billion plus credit facility

By Sara Rosenberg

New York, Sept. 6 - Walter Industries Inc. has scheduled a bank meeting for Monday to launch its proposed credit facility that should be somewhere close to $1.7 billion in size, according to a market source.

Banc of America Securities LLC and Morgan Stanley & Co. are joint lead banks on the deal, with Bank of America the left lead.

The credit facility is being obtained in connection with Walter's proposed acquisition of Mueller Water Products Inc.

The company is dividing into two separate entities - one comprised of its water group, which will include Mueller and U.S. Pipe, and the other comprised of its energy group and homebuilding and financing group.

The water group's credit facility will contain a $1 billion term loan B and a revolver, the source said. Under the original commitment letter that was announced in June, the revolver size was expected to be $125 million, but sources have said that this number may have been tweaked.

The term loan, $19.3 million of revolver borrowings and $98.9 million of super holdco notes will be used to fund a $381 million dividend to U.S. Pipe, to fund a $98.9 million dividend to Walter and to refinance $683.3 million of existing debt.

Capitalization of the water group will include $315 million of assumed Mueller senior subordinated debt and $116 million of assumed Mueller holding company debt.

Mueller's approximately $100 million second-lien notes that are callable in November will be tendered for upon consummation of the transaction.

The energy/homebuilding/financing group credit facility will contain a $350 million term loan B and a new revolver, the source continued. The original commitment was for a $375 million term loan B and a $200 million revolver, but these numbers were also tweaked as the deal is getting closer to launch.

The term loan, $41.8 million of revolver borrowings, $381 million of U.S. Pipe proceeds and $98.9 million of super holdco notes will be used to fund the acquisition of Mueller and to refinance existing revolver debt.

The company's existing $175 million of convertible debt will remain outstanding at this energy/homebuilding/financing entity.

Under the acquisition agreement, Walter will purchase Mueller for $1.91 billion, consisting of about $860 million in cash and the assumption of about $1.05 billion in Mueller debt. The transaction is expected to be accretive by $0.20 to $0.24 per fully diluted share in the first full year after closing.

The acquisition, which is expected to be completed in the third quarter, is subject to customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and financing.

Walter Industries is a Tampa, Fla.-based diversified company that operates in homebuilding, related financing, and water transmission products, and is also a producer of high-quality metallurgical coal. Mueller is a Decatur, Ill.-based supplier of water infrastructure and delivery systems.

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