J.P. Morgan & Co. and Donaldson, Lufkin & Jenrette unveiled a new structure Wednesday for a $2.75 billion financing package to Lyondell Chemical Worldwide, after investors said the loan might face refinancing risk next year.
Market sources said the new structure, which must be approved by investors before Saturday, adds a senior secured bank term loan that would reduce the amount to be refinanced to $500 million, from $1.75 billion.
On Tuesday, "we received a lot of investors' unsolicited feedback," said a banker working on the amendment. "There was a lot of concern about the refinancing risk in 2000 ... The company wants to act fast to take advantage of the current market conditions."
Lyondell is refinancing the $7 billion of bank loans that it used to buy Arco Chemical Co. last year. Should the loan amendment be approved, Lyondell said, it expects to have about $6 billion of debt at the end of 1999.
Pricing for the new tranche is to be set according to a public senior secured note issue. The new tranche and notes are expected to generate $1.75 billion of cash.
Market reception is expected to determine how much of the amount will be in notes and how much in bank loans. The package also includes $500 million of new Lyondell stock, about 35 million new shares, and $500 million of senior subordinated notes.
The new structure came after Moody's Investors Service downgraded Houston-based Lyondell's senior secured bank debt to "Ba3," from "Ba2," last Friday.
In its report, Moody's said the ratings reflected Lyondell's decision to issue only $500 million of new stock. The company had considered raising $1.25 billion.
"The reduced amount of the new equity raised leverage, and the debt burden and will result in higher interest expense," said Richard Stephan, a Moody's managing director.