Ford, General Motors soften on worries over future; LCDX, cash head higher

By Sara Rosenberg

New York, Dec. 23 - Ford Motor Co. and General Motors Corp. both saw their term loans come in a few points during the Tuesday trading session as investors still seem to be concerned over whether the companies can survive their liquidity issues.

Also in trading, LCDX 10 and the cash market in general were up a little bit on the day even though the stock market was weaker.

Ford, General Motors drop

Ford and General Motors traded lower on Tuesday as "people are still skeptical they might go into bankruptcy," a trader told Prospect News.

Ford, a Dearborn, Mich.-based automaker, saw its term loan quoted at 37½ bid, 40½ offered, down from Monday's levels of 40 bid, 42 offered, the trader said.

And, General Motors, a Detroit-based automaker, saw its term loan quoted at 43 bid, 46 offered, down from 45 bid, 47 offered, the trader continued.

On Monday, both companies were hit with ratings downgrades; however, according to the trader, those downgrades probably did not have much of an impact on the term loan levels.

Ford, GM ratings cut

Moody's Investors Service announced on Monday that it downgraded the corporate family rating of Ford to Caa3 from Caa1 and that the outlook is negative.

Moody's said that the downgrade reflects the increased risk that Ford will have to undertake some form of balance sheet restructuring in order to achieve the same UAW concessions that General Motors and Chrysler are likely to achieve as a result of the recently approved government bailout loans.

Also on Monday, Standard & Poor's lowered its issue-level ratings on the unsecured debt of General Motors to C from CC.

S&P explained that the downgrade reflects General Motors' planned receipt of up to $13.4 billion of U.S. government loans, plus another about $2.5 billion from the Canadian and Ontario governments.

The rating agency said that its expects the loans to be backed by a security package that includes currently unencumbered assets, which would lead to a significant decrease in value for unsecured debtholders in the event of a bankruptcy or payment default.

LCDX, cash rise

LCDX 10 and the cash market were actually a little better during the session, ignoring the retreat that was seen in equities, according to a trader.

The index was quoted around 77 bid, 77.50 offered, up from 76.75 bid, 77.25 offered, the trader said.

And the cash market was up about half a point to a point, although activity was light, the trader added.

As for stocks, Nasdaq closed down 10.81 points, or 0.71%, Dow Jones Industrial Average closed down 100.28 points, or 1.18%, S&P 500 closed down 8.47 points, or 0.97%, and NYSE closed down 52.54 points, or 0.95%.

Precision Drilling closes

In other news, Precision Drilling Trust closed on its new $1.2 billion senior secured credit facility (Ba1/BBB-), consisting of a $400 million five-year revolver, a $400 million five-year term loan A, a $325 million 53/4-year term loan B-1 and a $75 million 53/4-year term loan B-2.

The revolver and the term loan A are priced at Libor plus 400 basis points, the term loan B-1 is priced at Libor plus 600 bps with a 3.25% Libor floor and was sold at an original issue discount of 80, and the term loan B-2 is priced at Libor plus 800 bps with a 3.25% Libor floor and was sold at an original issue discount of 85.

During syndication, the term loan B-2 was carved out of what was originally going to be a single $400 million term loan B tranche, pricing on the term loan B-1 was increased from Libor plus 500 bps with discount guidance in the 86 area, and pricing on the term loan B-2 was increased from Libor plus 725 bps.

When the term loan B-2 was first announced, the size was up in their air, with the estimation being that it would be in the range of $75 million to $100 million.

The term loan B-2 was done for certain CLO investors that couldn't get involved in the deal at a discount of 80.

Precision covenants

Covenants under Precision Drilling's credit facility include a minimum interest coverage ratio of 3.0 times, a minimum fixed-charge coverage ratio of 1.0 times in 2009 through 2010 and 1.05 times thereafter, and a maximum total leverage ratio of 3.0 times.

During syndication, some adjustments were made to the terms of the credit agreement including, among other things, the amortization and the excess cash flow sweep.

Under the changes, amortization on the $400 million 53/4-year term loan B was increased to 5% per year from the previously proposed 1% per year.

The excess cash flow sweep was increased to 75% when the company's consolidated leverage ratio is greater than 2.0 times, 50% when leverage is greater 1.25 times, 25% when leverage is greater than 0.75 times, and 0% when leverage is less than 0.75 times.

Also, limitations were placed on cash distributions, including that the company must be in compliance with all financial covenants, including the fixed-charge ratio, which picks up distributions.

And, a capital expenditures restriction was added, limiting expansion capital expenditures to a level of 50% above the base case projections before consideration of the excess EBITDA adjustment.

Precision buys Grey Wolf

Proceeds from Precision Drilling's credit facility were used to help fund the acquisition of Grey Wolf Inc. for $9.02 in cash or 0.4225 Precision trust units, subject to proration. The maximum amount of cash to be paid will be about $1.12 billion, and the maximum number of trust units to be issued will be about 42 million.

Other financing for the transaction came from a $400 million 12-month unsecured bridge loan.

At the close, total senior secured debt was 1.12 times, total debt was 1.67 times and total capitalization was 4.09 times.

RBC Capital Markets and Deutsche Bank acted as the joint lead arrangers and bookrunners on the credit facility, with RBC the administrative agent and left lead, Deutsche the syndication agent, and HSBC and TD Securities the co-documentation agents.

Precision is a Calgary, Alberta-based provider of high performance energy services to the oil and gas industry. Grey Wolf is a Houston-based provider of turnkey and contract oil and gas land drilling services.

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