Precision Drilling Trust announced the expected principal terms of the credit facilities with its banking syndicate, consisting of Royal Bank of Canada, RBC Capital Markets, Deutsche Bank AG Cayman Islands Branch, Deutsche Bank Securities Inc., HSBC Bank Canada, HSBC Bank USA, National Association and The Toronto-Dominion Bank.
In conjunction with the proposed acquisition of Grey Wolf, Inc., and as previously disclosed, the Credit Facilities will consist of US$800 million of senior secured term loan facilities and a US$400 million senior unsecured facility which will be used to finance the merger consideration. The Credit Facilities also include a US$400 million senior secured revolving facility that will be primarily used to finance working capital needs and general corporate purposes of Precision.
Based on consultation with the Banks, it is currently expected that the costs and fees for the Credit Facilities will be more expensive than originally anticipated.
The terms of the financing are expected to include:
- A blended cash interest rate of approximately 11% per annum before upfront costs, increased from the 8% originally estimated in the pro forma financial information included in Precision’s and Grey Wolf’s proxy statement/prospectus dated October 28, 2008;
- Additional upfront costs in the form of original issuance discounts and fees of approximately US$76 million which will reduce the proceeds of the financing by a total of approximately US$133 million;
- Limits on distributions based on 20% of Precision’s operating cash flow before changes in working capital, provided that 50% of operating cash flow generated in excess of certain base case projections will also be permitted to be paid as distributions, subject to an overall cap of 30% of aggregate operating cash flow before changes in working capital;
- Debt covenants that will limit Precision’s capital expenditures above an agreed base-case, allowing for certain exceptions; and
- Provisions reserved by the Banks to facilitate syndication of the Credit Facilities for a period following closing which may result in further increases in any or a combination of interest rates, original issue discounts or fees, all subject to certain market-based indexing.
As a consequence, Precision will be pursuing a debt reduction program following completion of its merger with Grey Wolf. Precision will also be considering its distribution policy and may determine to reduce or suspend monthly cash distributions following completion of the merger. Additionally, Precision will be re-evaluating its planned capital expenditure program including expansion and upgrade capital expenditures. Precision will continue its focus on high performance, high value customer service in combination with cost minimization and cash generation.
Precision has advised Grey Wolf of the expected changes in the terms of Precision’s Credit Facilities. Precision and Grey Wolf intend to file a supplement to their proxy statement/prospectus with the US Securities and Exchange Commission to reflect the pro forma effect of the Credit Facilities on the combined company, which will be mailed to Grey Wolf shareholders. Precision remains firmly committed to close its proposed merger with Grey Wolf.