Market questions Casella Waste Systems' loan on news of bond offering postponement

By Sara Rosenberg

New York, July 24 - There is some skepticism in the market as to whether Casella Waste Systems will close on its recently launched $300 million senior secured credit facility (B1/BB-) due to the postponement of its $150 million 10-year senior subordinated notes offering, according to market sources.

"It's going to be challenging because the bank loan and the bonds were going to pay back about $277 million of funded debt - $157 million under a revolver and $120 million under a term loan B - and it's only a $300 million credit facility," a financial professional said. "The company needs working capital so they won't draw the whole facility.

"They haven't announced a formal withdrawal [of the bank deal], but being that bonds didn't happen, the loan may not move forward. They may continue to solicit commitments but I don't think they will be able to close on it.

"[The company] may wait for the bond market to improve and then come back with the deal," he added. "The firmness in the equity market today is reassuring for our market so we'll see what happens."

At close, the Dow Jones Industrial Average was up 488.90 to 8191.20, the S&P 500 was up 45.73 at 843.43 and the New York Stock Exchange was up 247.14 at 4459.90.

Casella's loan consists of a $175 million five-year revolver with an interest rate of Libor plus 275 basis points and a $125 million term loan B with an interest rate of Libor plus 325 basis points. Fleet Securities and Bank of Americas are the lead banks on the deal.

The syndicate was not immediately available to discuss the deal.

Casella Waste Systems is a Rutland, Vt. provider of collection, transfer, disposal and recycling services.

If Casella's loan is pulled out of the market, it will be the third one this week. Graham Packaging Co. and Cinemark Inc. postponed their initial public offerings of common stock due to the unfavorable market resulting in the withdrawal of companies' new credit facilities.

Graham Packaging Co. shelved a $700 million senior secured credit facility, according to a syndicate source, since the loan was contingent upon the completion of the company's IPO, which was tentatively slated for next week. Deutsche Bank and Citibank were the lead banks on the credit facility.

Graham Packaging is a York, Pa. designer, manufacturer and seller of customized blow molded plastic containers for the branded food and beverage, household and personal care and automotive lubricants markets.

Cinemark Inc. tabled a $250 million credit facility, which was also contingent upon the completion of the IPO. Lehman Brothers was the lead arranger for the Plano, Tex. movie operator's loan.

In other news, Pacific Energy Partners LP recently flexed up pricing on its term loan B tranche, according to market sources. Originally, the $225 million seven-year term B was priced with an interest rate of Libor plus 250 basis points. However, due to market conditions, the interest rate was increased to Libor plus 275 basis points.

"People needed more yield and they gave it to them," a market participant said.

Pricing on the $200 million five-year revolver remained at Libor plus 225 basis points. The revolver is expected to be undrawn at closing and has a $45 million sub-limit for working capital, letters of credit and distributions.

The company is entering into the $425 million senior secured credit facility in conjunction with its initial public offering. Fleet National Bank and U.S. Bank are lead banks on the deal.

Amortization for the term loan is 1% per annum beginning in 2005 with a 97% balloon payment due at maturity, according to a filing with the Securities and Exchange Commission.

Security is membership pledges of interests in certain majority-owned subsidiaries and mortgages on and security interests in the real property, fixtures and certain contract rights.

Proceeds from the term loan will be used fund a distribution to the company's general partner for the contribution of assets and liabilities, to purchase, repay or refinance existing debt, to pay fees and expenses of the credit facility and to pay transaction costs related to the IPO, the filing said.

Proceeds from the revolver will be used for general purposes, to finance future acquisitions and to fund working capital requirements.

Covenants require the company to maintain a ratio of maximum total funded debt to consolidated EBITDA of up to 4.25:1, stepping down to 4.00:1 at December 31, 2003. For nine months following the closing of the EPTC asset acquisition, this ratio will increase to 5.25:1. Also required is a maximum of debt to total capital of 70% and a minimum interest coverage ratio of 3.00:1. For the four quarters following the closing of the EPTC asset acquisition, this ratio will decrease to 2.50:1.

Pacific Energy, a limited partnership formed by The Anschutz Corp., is a Long Beach, Calif. crude oil transporter. Underwriters for the IPO are Salomon Smith Barney, Deutsche Bank Securities, Lehman Brothers, UBS Warburg, A.G. Edwards & Sons Inc., Raymond James and RBC Capital Markets.

In primary activity Wednesday, both URS Corp. and Otis Spunkmeyer Inc. launched new credit facilities.

URS held a bank meeting for a new $650 million credit facility (Ba3). The loan consists of a $200 million five-year revolver with an interest rate of Libor plus 300 basis points, a $100 million five-year term loan A with an interest rate of Libor plus 300 basis points and a $350 million six-year term loan B with an interest rate of Libor plus 350 basis points, a market source said. Credit Suisse First Boston is the lead bank on the deal.

Basically all assets secure the San Francisco, Calif. engineering and design services provider's loan.

Proceeds will be used to refinance outstanding debt and to back the acquisition of EG&G Technical Services from the Carlyle Group for $500 million.

Otis Spunkmeyer held a bank meeting for a new $140 million senior secured credit facility. The loan consists of a $20 million six-year revolver with an interest rate of Libor plus 300 basis points and a $120 million 6½ year term loan B with an interest rate of Libor plus 350 basis points, according to market sources. Merrill Lynch and JPMorgan Chase are the lead banks on the deal.

The San Leandro, Calif. cookie company will use the proceeds to help fund the leveraged buyout by Code Hennessy & Simmons.

"Otis is small and URS is an existing issuer," a financial professional said. "Guys will look at both of them."

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