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Beyond the slowdowns, a few cases of available financing emerge. What are Brocade, Sensient, and MGM Mirage doing right?
Stephen Taub and Roy Harris, CFO.com | US
October 8, 2008
Every downturn has its trendbuckers. In the continuing financing crisis, you'll find some of them this week at Brocade Communications Systems, Sensient Technologies, and MGM Mirage. All three are still borrowing for projects, although it clearly is tougher going than it was a year or two ago.
Brocade entered into a $1.225-billion secured credit facility with a number of financial institutions, including Bank of America and Morgan Stanley, to finance a portion of Brocade's acquisition of Foundry Networks, which was announced back in July. The financing consists of a $1.1 billion term loan facility and a $125 million revolving credit facility.
The networking company said it anticipates raising up to $400 million in additional financing. It will also use cash on hand at both companies, along with limited proceeds from a portion of the revolving credit facility, to fund the $3 billion acquisition.
In its smaller deal, Sensient, a maker of colors, flavors, and fragrances, completed a new $85 million term loan agreement with four banks to retire public debt that matures in 2009.
"We are pleased with the terms of this transaction and the strong response from our banks in difficult market conditions," said Kenneth P. Manning, chairman and CEO. "These financial institutions recognized the value of our consistently superior operating performance and our strong balance sheet."
At MGM Mirage, a new $1.8-billion senior bank credit facility became the first phase of its $3 billion financing package for CityCenter, a joint development project with Dubai World, the investment arm of the Dubai government. Las Vegas-based MGM Mirage, which is controlled by investor Kirk Kerkorian, added that it has received additional signed commitment letters exceeding $500 million, although it is still seeking the rest of the needed financing. CityCenter, described as a 76-acre city-within-a-city, is scheduled to be completed in December 2009.
"Even in the current difficult lending environment, strong well-conceived projects attract financing — CityCenter is such a project," said Dan D'Arrigo, executive vice president and CFO of MGM Mirage. "We and our partner are actively in discussions with additional financial institutions to obtain the additional funding of the credit facility and are receiving strong interest in the syndication process set to launch this week."
The credit facility consists of a $250 million revolver with the remaining amount being in the form of term loans and is secured by substantially all of the assets of CityCenter. The facility is initially priced at Libor plus 3.75 percent through the construction period. The facility is led by Bank of America, Royal Bank of Scotland, UBS, BNP Paribas, and Sumitomo Mitsui.
"MGM's strong balance sheet and long track record of superior financial performance combined with the substantial financial resources of our partner uniquely position CityCenter in an obviously difficult credit market," said D'Arrigo.
Bank of America, too, managed to raise nearly $9.76 billion, through a stock offering. But it had to settle for selling 455 million shares at $22 each, 8 percent less than the previous day's closing price, Bloomberg News reported. The bank, which is buying Merrill Lynch & Co., reported a 26-percent Tuesday stock-price plunge from the low-30s, after it reported a sharp decline in quarterly profits and cut its dividend in half. The offering includes an option for underwriters to buy 68.25 million additional shares, which would give the company a total of $11.22 billion.
Funding is also apparently available — if in rare cases — to companies trying to emerge from bankruptcy. For example, Interstate Bakeries filed an amended Reorganization Plan after receiving funding commitments from investors, led by Ripplewood Holdings L.L.C., the private equity fund. The plan reflects "a substantially impaired recovery for pre-petition senior secured creditors," according to the announcement. Unsecured creditors and equity holders will not recover anything, however. The plan currently has the support of about 53.8 percent of the pre petition secured debt holders.
To feature such trendbuckers, of course, there must be a trend — in this case one that restricts most companies' ability to securing the financing they need.
Earlier this week, for example, Landry's Restaurants warned that Tilman J. Fertitta, chairman, president, and CEO, was unable to complete his plan to buy the company. It cited the closure of the company's Kemah and Galveston properties, the deterioration in the casual dining and gaming industries, the instability in the credit markets and the debt financing required to complete the deal at the current $21 per share price.
Fertitta is currently in negotiations with Jefferies and Co. about financing for a transaction "at a substantially reduced price," the company added.
But new trendbucking candidates — noncorporate as well as corporate — are emerging all the time.
The National Republican Congressional Committee, for one, has just received an $8-million loan that will help cut the Democratic Party's cash-on-hand advantage. Sources tell CFO.com's sister publication, Roll Call, that the money will be used for House races during the final weeks of the campaign. As of Aug. 31, the NRCC had $14.4 million in cash, compared with $54 million for the Democratic Congressional Campaign Committee.
The Republicans, according to Roll Call's sources, procured the loan from Wachovia Bank — a unit of Wachovia Corp., a company hard-hit by the financial crisis, and now due to be sold to Wells Fargo & Co., unless negotiations turn rival Citigroup Inc. into the winner.