Genesee & Wyoming secures $2.8 billion of funding to buy RailAmerica

Funding includes at least $350 million privately placed convertibles

By Lisa Kerner

Charlotte, N.C., July 23 - Genesee & Wyoming Inc. announced it will use about $2 billion of new debt and $800 million of equity or equity-linked securities to fund the $2 billion acquisition of RailAmerica, Inc. and simultaneously refinance its own existing debt.

Genesee & Wyoming has $2.3 billion of committed debt financing from Bank of America Merrill Lynch, chief financial officer T.J. Gallagher said during a conference call on Monday.

The senior secured debt financing includes

• A five-year $425 million multi-currency revolver with an estimated cost of Libor plus 250 basis points;

• A five-year $875 term loan A in U.S., Australian and Canadian dollars with an estimated cost of Libor plus 250 bps; and

• A seven-year $1 billion term loan B with an estimated cost of Libor of 375 bps with a 1% Libor floor.

The company plans to enter into interest rate hedging contracts to fix the long-term cost of $750 million of debt.

Genesee & Wyoming said it expects to draw about $2 billion of the new debt facilities with an initial weighted-average cost of debt of 4.8%. The company expects to have about $300 million of undrawn revolver capacity at closing, according to a news release.

Carlyle convertible preferreds

In addition, the Carlyle Group agreed to provide an $800 million equity commitment anchored by a private placement of a minimum of $350 million of two-year mandatorily convertible preferred stock from Carlyle Partners V, a $13.7 billion U.S. buyout fund.

According to Gallagher, Genesee & Wyoming may fund up to an additional $450 million of the convertibles on the same terms or through the public issuance of equity or equity-linked securities.

The convertible preferreds have a dividend rate of 5% per year and a conversion price of $58.49.

The call option for amounts over $350 million and up to $800 million will be on the same terms if called within specified dates prior to application for or receipt of formal approval of the transaction or if the current 30-day VWAP exceeds 85% of the reference price, or $45.19.

Genesee & Wyoming will record an additional $42 million of financing fees on its balance sheet for the anticipated equity issuance and the committed debt.

4 times leverage expected

Jack Hellman, president and chief executive officer of Genesee & Wyoming, expects the company's pro forma ratio of total debt to EBITDA to be about 4 times by year's end. However, with the "powerful cash flows" of the two companies, he expects to rapidly delever and bring that ratio down to 3 times by the end of 2013 "assuming we have full control of the railroads," he said.

Bank of America Merrill Lynch advised Genesee & Wyoming.

Deutsche Bank Securities advised RailAmerica.

Subject to approval by the U.S. Surface Transportation Board, the acquisition is expected to close as early as the fourth quarter of 2012 or as late as the third quarter of 2013. Genesee & Wyoming expects to close the transaction into a voting trust as early as the third quarter while awaiting STB approval.

Genesee & Wyoming is a Greenwich, Conn.-based owner and operator of short line and regional freight railroads and provider of railcar switching services.

RailAmerica is a Jacksonville, Fla.-based owner and operator of short line and regional freight railroads.

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