LONDON, Feb 11 (Reuters) - UK engineering and construction company Amec Foster Wheeler is trying to close an expensive £1.7bn (US$2.47bn)syndicated loan that refinances existing loans after deciding not to tap the bond market late last year, bankers said.
London-headquartered Amec raised US$2.16bn of loans in February 2014 to back its acquisition of Foster Wheeler which was increased to US2.26bn in July 2014.
The deal included a US$850m bridge loan to bond issues and a US$250m bridge to cash. The maturity of the bond bridge was subsequently extended to Feb. 2017.
Amec, which has been struggling as falling oil prices forced customers to rein in spending, did not have to pay punitive pricing step ups on the bridge loan that encourage quick bond refinancing.
It halved its dividend in early November and decided not to tap the corporate bond market as spreads widened amid heightened volatility towards the end of 2015.
The company lost its investment-grade Baa3 credit rating in mid-November when Moody’s downgraded it to junk with a Ba1 rating.
Amec had to refinance the bridge loans with a £1.7bn medium-term syndicated loan to meet working capital liquidity requirements after the high-yield bond market closed at year end.
That loan, which has a maximum maturity of three years, is paying around 300bp all-in, roughly double the price of its original corporate bond issue, with fees that are three times as high as bond fees, a senior loan banker said.
Amec is self-arranging the £1.7bn loan and commitments are around three weeks overdue as lenders remain wary of companies with exposure to the ailing oil and gas sector, bankers said.
“The loan is three weeks overdue and they have not closed the book on the first phase of syndication,” a senior loan banker said.
A company spokesman said that the refinancing would be completed by the end of the first quarter and said Amec would give an update when it announced its results on March 10.
Amec originally planned to refinance the Foster Wheeler acquisition bridge loan in the second quarter of 2015 with an expected investment-grade rating, which would have given an estimated borrowing cost of 2.5%, according to the company’s 2014 full-year results presentation.
Amec’s banks were expecting rapid repayment of the bridge loans, but have been left with more exposure for longer than they anticipated after the company did not tap the bond market as expected.
“The bridge loan was sold to banks on the rationale that it was short term, banks would earn fees and the exposure would be gone in a year. Now this is a three-year term out when they thought it would reduce quickly,” the senior loan banker said.
The initial US$2.16bn loan of February 2014 was arranged by Bank of America Merrill Lynch and bookrunners and mandated lead arrangers Barclays Bank, Bank of Tokyo-Mitsubishi UFJ and Royal Bank of Scotland.
In a trading call on Nov. 5, company executives said that Amec was seeking to refinance the bridge loan in the next six months to give the company plenty of headroom, and would look at the bond and bank markets.
Moody’s cited Amec’s deteriorating operating environment and declining margins as reasons for its downgrade and said that the company’s efforts to cut its dividend and accelerate cost cutting was not sufficient to mitigate tough conditions in its core oil and gas operating segment.
Amec said in a January update that its refinancing was going to plan, at the same time that it announced that chief executive Samir Brikho was stepping down. ($1 = 0.6887 pounds) (Editing by Christopher Mangham)