NRG rises on buyout offer; US Airways up as amendment passes; Landry's revises debt commitment

By Sara Rosenberg

New York, Oct. 20 - NRG Energy Inc.'s strip of institutional bank debt traded higher on Monday after news emerged that Exelon Corp. offered to purchase the company, which would lead to a better balance sheet for NRG and possible refinancing of its debt.

Also in trading, US Airways Group Inc.'s term loan was better as its amendment was approved by lenders, and the overall cash market had a positive tone to it, pushing names like General Motors Corp. and Ford Motor Co. up.

In other news, Landry's Restaurants Inc. negotiated a lower buyout price with its proposed buyer and the financing for the transaction was reduced and reworked as a result of current market conditions.

NRG up with acquisition proposal

NRG Energy's term loan and letter-of-credit facility strip gained some ground on Monday as Exelon announced an unsolicited proposal to acquire the company in an all stock deal, according to traders.

The strip of bank debt was quoted at 84 bid, 86 offered by late afternoon, compared to closing levels on Friday of 81 bid 83 offered, one trader said.

The trader went on to say that the bank debt started Monday morning really strong with levels, reaching a high of around 88 bid, 90 offered, but then it dropped to 83½ bid, 85½ offered before rebounding slightly from there.

"[Maybe] people got an idea of what the acquisition looks like and maybe realized there's some risk to the acquisition," the trader remarked in explanation of why the bank debt came off its early day highs.

A second trader, however, had the bank debt quoted at 86 bid, 88 offered towards the end of the day.

On Sunday night, Exelon said that it is putting forward an offer to purchase NRG Energy in an all-stock transaction with a fixed exchange ratio of $26.43 for each NRG common share - representing a total equity value of about $6.2 billion based on Exelon's closing price on Oct. 17.

"An Exelon-NRG combination would result in a total enterprise value of about $60 billion, with a generating capacity of around 47,000 megawatts, or enough electricity to serve nearly 45 million homes," said John W. Rowe, chairman and chief executive officer of Exelon, in a news release.

"This combination would not only diversify Exelon's generation portfolio geographically, it would also create immediate earnings and cash flow accretion. We believe a combination of Exelon and NRG would represent an exceptional value for shareholders of both companies," Rowe added in the release.

Exelon, NRG merger to help NRG balance sheet

According to Exelon, the acquisition of NRG would create the largest power company in the United States, with sufficient financial and operating strength to address the nation's increasingly urgent energy needs.

In addition, Exelon said that the transaction would give a certain amount of financial strength to NRG that it currently lacks.

"NRG is highly leveraged with over $8 billion of debt and a credit rating of Ba3/B+. The combination of Exelon and NRG will reduce the leverage associated with NRG's current business and enhance its credit rating. Although the combination is expected to reduce Exelon's credit ratings, Exelon is committed to a path to restore the ratings of the combined company to Exelon's current ratings," the release explained.

Even with the potential Exelon downgrade, it is expected that the combined company's balance sheet would be very strong, with investment grade credit ratings.

Exelon ready to divest assets and refi debt

Exelon said that it's possible that approvals of regulatory authorities for the transaction may depend upon modest divestiture of some assets of the combined company in some markets, and has therefore already developed a divestiture strategy that will address the concerns of regulatory authorities.

Furthermore, Exelon said that a substantial amount of NRG debt may need to be refinanced upon a change of control of NRG.

"Based on discussions with our financial advisors, we believe that we will be able to arrange for the refinancing of NRG debt and appropriately address the NRG lien facility with trading counterparties, and we will propose to include provisions in the definitive agreement to assure both companies that the refinancing and lien facility arrangements are completed at the closing of the combination," the release added.

The buyout proposal is subject to the negotiation of a definitive merger agreement, receipt of the necessary board and shareholder approvals, and Exelon conducting limited confirmatory due diligence.

In response to the offer, NRG said in a news release that its board of directors will review the proposal with their advisors and determine the appropriate response in due course.

Citigroup Global Markets Inc. and Credit Suisse Securities LLC are serving as financial advisors to NRG.

NRG is a Princeton, N.J.-based owner and operator of diverse power generation portfolios and Exelon is a Chicago-based electric utility.

US Airways soars on amendment OK

US Airways' term loan rallied by a couple of points during Monday's trading session as lenders approved an amendment that will result in some of the debt being repaid, according to a trader.

The term loan was quoted at 56½ bid, 60½ offered, up from Friday's levels of 50½ bid, 53½ offered, the trader said.

As was previously reported, under the amendment, lenders would get about a 25% paydown at par and in return, the company would be allowed to sell some equipment that acts as collateral.

In addition, lenders were offered a fee of 150 basis points or 75 bps, depending on when they consented to the amendment.

US Airways is a Tempe, Ariz.-based airline company.

GM, Ford stronger with market

General Motors and Ford both saw their term loans move higher in trading as the cash market in general was better, according to a trader.

General Motors, a Detroit-based automotive company, saw its term loan quoted at 44½ bid, 47½ offered, up from 43½ bid, 46½ offered, the trader said.

And Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 47 bid, 49 offered, up from 45 bid, 47 offered, the trader continued.

Meanwhile, the cash market overall was up about one to two points on the day, the trader remarked, adding "some things more, some things flat, but in general one to two."

Landry's tweaks buyout terms, financing

Moving to new deal happenings, Landry's Restaurants revised its acquisition agreement with Fertitta Holdings Inc. to lower the purchase price, and the debt commitment with the banks was modified as well to change the terms and reduce the size, according to a news release.

Under the amended agreement, Fertitta will purchase Landry's for $13.50 per share of common stock, compared to the previous agreed upon price of $21 per share price.

As for the financing, the commitment was changed so that lead banks Wells Fargo Foothill and Jefferies have only agreed to provide $500 million in funded debt on terms reflecting the current credit market disruption.

Under the original commitment, Landry's was going to get a $300 million senior secured credit facility - consisting of a $50 million five-year revolver and a $250 million five-year term loan A - expected to be priced at Libor plus 400 bps, with a 3.25% Libor floor, and $315 million of senior secured notes, which were backed by a commitment for a $315 million one-year senior secured increasing rate bridge loan.

Originally, Landry's had scheduled a bank meeting for Sept. 4 to launch the credit facility, but that ended up being delayed until Sept. 18. And then, the Sept. 18 bank meeting was pushed off primarily because of Hurricane Ike. Currently, there is no expected timing available on the deal.

Landry's changes reflect current environment

Earlier this month, Fertitta had announced that the financing for the transaction was in jeopardy as a result of the unprecedented collapse of the credit markets, the closure of Landry's Kemah and Galveston properties because of the hurricane and the slow down in the casual dining and gaming industries.

The changes to the purchase agreement and the debt financing are expected to remedy the situation.

As part of the compromise that was reached among the parties, Wells Fargo Foothill and Jefferies agreed under the amended debt commitment, and Fertitta agreed under the amended merger agreement that they would not claim that a material adverse effect had occurred.

Landry's gets alternative financing as back up

In connection with the amended agreements, Landry's also received a commitment for an alternative financing commitment from Wells Fargo Foothill and Jefferies that would be sufficient to repay the company's existing debt that is subject to acceleration and redemption starting in December.

The alternative financing would be provided on terms similar to the terms for the transaction financing in the event the acquisition is not consummated and certain other conditions are satisfied.

The buyout is anticipated to close in the first quarter of 2009, subject to shareholder approval, which is expected to be sought at a stockholder meeting in December.

Closing needs to take place prior to Feb. 15 since that is the new expiration date for the debt financing commitment.

Fertitta is a newly formed entity wholly owned by the company's chairman, president, chief executive officer and original founder, Tilman J. Fertitta, who beneficially owns about 39% of the company's outstanding common shares.

Landry's is a Houston-based restaurant, hospitality and entertainment company.

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