Precision Drilling zeroing in on carve-out details; King Pharmaceuticals trims term loan; LCDX rises

By Sara Rosenberg

New York, Dec. 16 - Precision Drilling Trust is getting close to finalizing the size and pricing of its term loan B carve out and, since syndication has progressed, the books on the deal are going to close on Wednesday.

In more new deal happenings, King Pharmaceuticals Inc. reduced the size of its term loan, while leaving pricing unchanged, and the buyout of Aquilex Holdings LLC was completed, but syndication of the credit facility that is helping fund the transaction is still in process.

Moving to the secondary market, LCDX 10 gained some ground on Tuesday as equities were better, while the cash market was pretty much unchanged in light trading.

Precision Drilling carve-out

Precision Drilling's term loan B carve-out, which will have a higher spread and a lower original issue discount than the rest of the term loan B, is expected to likely be around $75 million, although that number is still not 100% firm, according to a market source.

Pricing on the carve-out is now expected at Libor plus 800 basis points with an original issue discount of 85, the source said. Previous talk had the spread on the carve-out at Libor plus 725 bps.

The remaining 53/4-year term loan B is priced at Libor plus 600 bps with an original issue discount of 80 and a 3.25% Libor floor - after flexing up during syndication from original talk of Libor plus 500 bps with discount guidance in the 86 area.

The carve-out is being done for certain CLO investors that couldn't get involved in the deal at a discount of 80. This piece of debt with the tighter discount allows these investors to participate in the transaction.

Precision pro rata staying at initial pricing

Precision Drilling's $800 million of pro rata bank debt, which has been fully subscribed for some time now, is expected to firm up with pricing of Libor plus 400 bps, in line with original talk, the source remarked.

Tranching on the pro rata is comprised of a $400 million five-year revolver and the $400 million five-year term loan A.

RBC Capital Markets and Deutsche Bank are the joint lead arrangers and bookrunners on the $1.2 billion senior secured credit facility (Ba1/BBB-), with RBC the administrative agent and left lead, Deutsche the syndication agent, and HSBC and TD Securities the co-documentation agents.

Financial covenants 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.

More Precision bank terms

Last week, Precision Drilling made some adjustments to its credit facility to help the books along before the deal's scheduled close on Dec. 23, including, among other things, revising 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, the source added.

Precision allocations expected soon

As of last week, Precision Drilling was anticipating communicating allocations to lenders on this coming Friday.

Proceeds from the credit facility will be 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 will come from $400 million of senior unsecured notes, which are backed by a commitment for a $400 million 12-month unsecured bridge loan. The bridge loan will be reduced by the amount of Grey Wolf's convertible securities that are not converted or redeemed at close.

Total senior secured debt will be 1.12 times, total debt will be 1.67 times and total capitalization will be 4.09 times.

Completion is still subject to Grey Wolf shareholder approval. The Grey Wolf special meeting of shareholders is scheduled for Dec. 23 after being pushed out from an original date of Dec. 9 because of a clarifying amendment that was made to the acquisition agreement.

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.

King Pharmaceuticals downsizes

Also in the primary market, King Pharmaceuticals cut the size of its four-year term loan to $200 million from $300 million and to replace those lost funds the company will put up more cash for its purchase of Alpharma Inc., according to a market source.

Pricing on the term loan was left in line with initial talk at Libor plus 500 bps with an original issue discount of 96.

Amortization on the term loan is 15% in year one, 20% in years two and three and 45% in year four.

The source said that the banks were "only able to get the $200 million," but that with the downsizing, the term loan is fully subscribed.

Earlier in the syndication process, sources told Prospect News that the deal was getting several commitments from commercial banks at the announced price point and that institutions were really only interested at juicier pricing.

King allocations near

Allocations on King Pharmaceuticals' term loan are expected to go out this Friday, following the receipt of comments on the credit agreement on Thursday, the source said.

Credit Suisse and Wachovia are the joint lead arrangers and bookrunners on the deal, with Credit Suisse the administrative agent.

Expected funding and closing of the transaction is targeted for Dec. 29, the source added.

Under the acquisition agreement, King is buying Alpharma Inc. for $37 per share in cash for a total equity value of about $1.6 billion.

Initially, Alpharma had rejected the buyout proposal, so King took the offer directly to Alpharma shareholders. But then, Alpharma decided to sign a definitive purchase agreement with King after all.

Other financing for the acquisition will come from $425 million in revolver borrowings.

Originally, the company was going to come to market with a $1 billion senior secured credit facility (Ba2/BBB-), consisting of a $150 million revolver talked at Libor plus 500 bps, a $350 million term loan A talked at Libor plus 500 bps with an original issue discount of 96 and a $500 million term loan B talked at Libor plus 550 bps with an original issue discount of 95.

However, at launch, lenders were presented with the structure of a new term loan and keeping the existing revolver in place.

King revolver amended to allow for draw

King Pharmaceuticals' $475 million revolving credit facility was recently amended to allow the company to draw the funds necessary for the acquisition and to allow for the use of the new term loan.

In addition, the amendment increased revolver pricing to Libor plus 500 bps from Libor plus 87.5 bps and raised the commitment fee to 50 bps from 20 bps.

Also, the amendment provides for mandatory quarterly commitment reductions of 15% in year one and 20% in years two and thereafter, with the remainder due at maturity on April 2012.

Covenants under the amended revolver include maintenance of maximum funded debt to consolidated EBITDA ratios that range from 1.50 to 1.00 to 3.25 to 1.00, and maintenance of minimum consolidated EBITDA to interest expense ratios that range from 3.75 to 1.00 to 4.00 to 1.00 - with the ranges depending on dates and the occurrence of events relating to certain patents.

Lenders received a 100 bps amendment fee for their consents.

King is a Bristol, Tenn.-based integrated branded pharmaceutical company. Alpharma is a Bridgewater, N.J.-based specialty pharmaceutical and animal health company.

Aquilex buyout done, syndication still going

Teachers' Private Capital announced on Tuesday that it completed its acquisition of Aquilex from Harvest Partners. However, syndication of the credit facility that was obtained to help fund the buyout has not quite wrapped up yet, according to a market source.

The expectation is that syndication will be completed shortly, the source said. Originally, the deal was being talked to existing lenders, with plans for a broad syndication later, but now it is anticipated that there will be no later syndication.

Aquilex's $310 million credit facility (Ba3/BB-) was launched to existing guys as a $50 million revolver, a $50 million term loan A talked at Libor plus 550 bps with an original issue discount of 95 and the $210 million term loan B talked at Libor plus 600 bps with an original issue discount of 94.

Both term loans were launched with a 3% Libor floor.

Initially, it was thought that the deal would consist of a $307 million first-lien term loan and a $50 million revolver, but the size and tranching were revised so as to improve the capital structure.

Aquilex used more mezzanine and equity

In order to make up for the lost term loan funds that resulted from the original change in structure, Aquilex was planning on using additional mezzanine financing and equity for its buyout transaction.

The mezzanine and equity were provided by Teachers' Private Capital.

RBC Capital Markets is the lead bank on the credit facility.

Aquilex is an Atlanta-based provider of service, repair and overhaul services, and industrial cleaning services to the energy and power generation sectors.

LCDX moves up

Switching to trading news, LCDX 10 was better on the day in sympathy with stocks, but the cash market stayed unchanged as very little volume was seen, according to a trader.

The index was quoted at 72.75 bid, 73.15 offered, up from 71.75 bid, 72.25 offered, the trader said.

Nasdaq closed up 81.55 points, or 5.41%, Dow Jones Industrial Average closed up 359.61 points, or 4.20%, S&P 500 closed up 44.61 points, or 5.14%, and NYSE closed up 307.07 points, or 5.59%.

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