Precision Drilling sets talk; U.S. Silica cuts size; Fresenius rises with numbers; Dean Foods trades up

By Sara Rosenberg

New York, Nov. 4 - Precision Drilling Trust released pricing guidance on its proposed billion-plus credit facility as the deal was presented to retail investors during Tuesday's market hours, and attendance at the launch was really strong.

Also in the primary, U.S. Silica Co. downsized its term loan A while increasing the mezzanine and equity financing for its buyout.

Over in the secondary market, Fresenius Medical Care AG & Co. KGaA's term loan headed higher after the company came out with positive quarterly results that were slightly better than analyst estimates.

Dean Foods Co.'s term loan B was also stronger in trading even though the company's earnings fell short of estimates as the cash market in general had a good tone to it.

Precision Drilling guidance surfaces

Precision Drilling held a bank meeting on Tuesday to kick off general syndication on its proposed $1.2 billion senior secured credit facility (Ba1/BBB-), and in connection with the launch, price talk was announced, according to a market source.

The $400 million five-year revolver and the $400 million five-year term loan A were both presented to lenders with talk of Libor plus 400 basis points, and the $400 million 53/4-year term loan B was presented with talk of Libor plus 500 bps, the source said.

The term loan B has a 3.25% Libor floor.

The original issue discount on the term loan A and the term loan B is still to be determined, the source remarked. Previously, sources told Prospect News that the discount is expected to be consistent with current market conditions.

Bank meeting well attended

The Precision Drilling investor meeting did get a lot of interest from potential lenders as, according to the source, there was a "standing room only turnout."

In addition, the banks have already closed an early round of syndication to senior managing agents that was very successful essentially getting the pro rata done.

The source continued to say that there's just a small amount leftover of the pro rata to place in the general syndication.

RBC Capital Markets and Deutsche Bank are the joint lead arrangers and bookrunners on the deal, with RBC the administrative agent and left lead, Deutsche the syndication agent, and HSBC and TD Securities the co-documentation agents.

More terms of Precision Drilling facility

In late September, the company filed an F-4 with the Securities and Exchange Commission that outlined not only the structure of the deal, but amortization and covenants, as well as some other details.

According to the filing, amortization on the term loan A is 5% in year one, 10% in years two and three, and 15% in year four, with the balance payable at maturity, and amortization on the term loan B is 1% per year, with the balance payable at maturity.

Financial covenants include a minimum interest coverage ratio of 3.0 to 1.0, a minimum fixed-charge coverage ratio of 1.05 to 1.0 in 2009 and 1.10 to 1.0 thereafter, and a maximum total leverage ratio of 3.0 to 1.0.

The filing also said that the facility has a $150 million accordion feature, a portion of the term loan A and the revolver will be available for borrowings in Canadian dollars, and that up to $100 million of the revolver plus any additional amounts necessary to finance any original issue discount on the term loans may be borrowed on the closing date to finance the acquisition and refinance debt.

Precision Drilling leverage below two times

Proceeds from the Precision Drilling 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 acquisition will come from$400 of senior unsecured notes, which is 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.

Pro forma for the transaction, senior leverage is 1.2 times and total leverage is 1.7 times. Equity will represent about 65% of the pro forma capital structure. On a pro forma basis for the 12 months ended June 30, combined revenue was $1.8 billion.

Completion of the acquisition is subject to Grey Wolf shareholder and customary regulatory approvals. The transaction is not subject to approval by Precision unitholders or financing.

In September, the Federal Trade Commission granted early termination of the Hart-Scott-Rodino waiting period in the proposed merger and the Grey Wolf special meeting of shareholders is scheduled for Dec. 9.

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.

U.S. Silica trims loan size

U.S. Silica reduced the size of its seven-year term loan A that will be used for its buyout by Golden Gate Capital and Preferred Unlimited to $102 million from $145 million, according to a market source.

On the flip side, the mezzanine financing for the deal was increased to $80 million from $74 million and there will be an additional $37 million in equity used.

Price talk on the term loan A was left unchanged at Libor plus 550 bps with a 3.25% Libor floor and an original issue discount of 97.

Amortization on the term loan is 2% in the first two years, 11% in year three, 12% in year four, 15% in years five and six, and the remainder in year seven.

Covenants include total leverage, minimum interest coverage and minimum fixed charge coverage.

Loan being marketed to range of investors

Despite being called a term loan A, U.S. Silica's in market deal is being shopped to a combination of banks and institutional investors.

There was no pre-marketing stage for this term loan and, currently, the company does not have an existing lender base. The company did get a credit facility about a year and a half ago, but that debt has already been taken out.

BNP Paribas is the lead bank on the loan that was originally supposed to wrap up last week but the books were left open as investors and the banks were and are still waiting on ratings from Moody's Investors Service and Standard & Poor's, a source previously told Prospect News.

The company has an existing $35 million ABL revolver that is going to remain in place following completion of the new term loan.

U.S. Silica is a Berkeley Springs, W.Va.-based producer of ground and unground silica sand, kaolin clay, aplite and related industrial minerals.

Fresenius up on earnings

Switching to trading news, Fresenius Medical Care's term loan gained some ground during the session after the company announced strong third quarter numbers, according to a trader.

The term loan was quoted at 85½ bid, 86½ offered, up about a point and a half on the day, the trader said.

For the third quarter, Fresenius reported net income of $206 million, up 14.1% from $181 million, and earnings per share rose 14% to $0.69 compared to $0.61 for the third quarter of 2007.

Net revenue for the quarter was $2.713 billion, an increase of 12% from $2.426 billion in the comparable period last year.

Operating income for the quarter was $422 million, up 6% from $397 million in the third quarter of 2007, resulting in an operating margin of 15.6% compared to 16.4% last year.

The company's ratio of debt to EBITDA decreased to 2.71 at the end of the third quarter from 2.88 at the end of the third quarter of 2007.

Fresenius affirms outlook

Also on Tuesday, Fresenius confirmed its outlook for full-year 2008 and expects to achieve revenue of more than $10.4 billion, an increase of more than 7%.

Net income is projected to be between $805 million and $825 million in the fiscal year 2008. This represents an increase of 12% to 15%.

In addition, the Company expects to spend $650 to $750 million on capital expenditures and $150 to $250 million on acquisitions. The debt/EBITDA ratio is projected to decrease to below 2.8 by the end of the year.

Fresenius is a Bad Homburg, Germany-based provider of products and services for individuals undergoing dialysis because of chronic kidney failure.

Dean Foods inches up

Dean Foods was another company to release earnings on Tuesday, and despite missing estimates, the company's term loan B traded higher as the cash market in general was stronger, according to traders.

The term loan B was quoted at 80 bid, 82 offered, up from the high 70s on Monday, one trader said.

As for the overall cash market, it felt like it was up about a half a point to three quarters of a point on low volume, another trader added.

For the third quarter, Dean Foods reported net income of $37.8 million, or $0.24 per diluted share, compared to $6.5 million, or $0.05 per diluted share, in the third quarter of 2007. On an adjusted basis, net income was $43.5 million, or $0.28 per share, compared to $18.7 million, or $0.14 per share, last year.

Total net sales for the quarter were $3.2 billion, up 3% from $3.1 billion in the comparable period last year.

Consolidated operating income in the quarter totaled $131.8 million, an increase of 28% from $103.3 million in 2007, while adjusted consolidated operating income totaled $140.8 million, an increase of 14% from $123.1 million last year.

Dean Foods reduces debt

From Dec. 31, 2007 through Sept. 30, Dean Food's debt outstanding decreased by $637 million to about $4.6 billion. The company's funded debt to EBITDA ratio declined to 5.35 times as of the end of the third quarter.

Free cash flow provided by operations in the nine months ended Sept. 30 totaled $288 million, a $233 million increase over the $55 million in the first nine months of 2007.

Also on Tuesday, Dean Foods said that it expects to deliver on its original guidance for adjusted diluted earnings per share for the year of at least $1.20.

As for 2009, the company expects to have earnings per share growth in the mid-teens.

Dean Foods is a Dallas-based food and beverage company.

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