Foundation Coal amendment would lift pricing to Libor plus 325 bps

By Sara Rosenberg

New York, May 18 - Foundation Coal Holdings Inc.'s credit facility amendment, if approved, would increase pricing on the revolver and term loan A to Libor plus 325 basis points from Libor plus 125 bps, according to a market source.

The amendment would also change certain non-financial covenants, the source said.

Citigroup is the lead bank on the amendment that was launched to lenders last week.

Consents are due this Friday and, in return for approvals, lenders will get a 50 bps amendment fee.

As was previously reported, the amendment is being done in connection with the company's pending all-stock merger with Alpha Natural Resources Inc.

As part of the merger, Foundation is leaving its $298 million of 7¼% senior notes, its $500 million revolver that was undrawn as of March 31, and its $302 million term loan A outstanding.

Alpha, on the other hand, will use available cash to repay its existing senior secured credit facility, consisting of a $375 million that was undrawn as of March 31 and a $233 million term loan facility.

Alpha will also preserve its 2.375% convertible senior notes and seek to upsize its $85 million accounts receivable securitization facility.

Under the merger, Foundation stockholders will receive 1.084 shares of the new company for each share of Foundation, and each share of Alpha will automatically become one share of the combined company.

The transaction is valued at about $2 billion, comprised of about 50 million new shares of the new company's common stock and the assumption of about $530 million of Foundation net debt.

Assuming the successful amendment of Foundation's credit facility, pro forma fiscal year 2008, leverage is expected to be 1.4 times EBITDA and total liquidity is expected to be about $750 million.

The combined company expects to generate substantial free cash flow in 2009 and 2010, which will facilitate debt reduction and support future growth initiatives.

Closing of the merger is expected to take place later this year, subject to approval of each company's stockholders and other customary conditions, including regulatory approvals.

The combined coal producing company will retain the Alpha name and will have headquarters in Abingdon, Va.

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