Cash-strapped Petrolane Gas Service L.P. unveiled its restructuring plan yesterday, dispelling rumors of a joint spinoff with Suburban Propane.
The two companies are jointly administered but operate separately.
Petrolane announced today that Clayton & Dubilier, a New York-based investment firm, had reached agreement on a restructuring plan with Petrolane's parent, QFB Partners.
The announcement drove Petrolane's 13 1/4 bonds due 2001 up to about 41 from 35, Bart Grenier, a vice president at Duff & Phelps/MCM said. Patrolane also announced a moratorium on all senior debt principal and interest payments until the restructuring is complete, Robert Mead, a Petrolane spokesman said. The company said it is unable to make a $46.4 million bank debt payment this Friday or a $24.8 million subordinated debt interest payment Oct. 1.
Clayton & Dubilier, under the plan, will create a new company that will acquire Petrolane. A fund, which will be managed by Clayton & Dubilier, would invest $100 million for the restructuring.
Holders of Petrolane's $375 million principal amount of 13 1/4% senior subordinated debentures would be offered a deal consisting of $77.5 million in cash, $85 million principal amount of 8% subordinated debentures due 2003, and, at those holders' option, either an estimated 16% equity stake in the restructured company or an additional $20 million in cash. If holders select the cash alternative, Clayton & Dubilier said, the fund would invest up to $20 million more in the restructuring.
Duff & Phelps' Mr. Grenier said the all-cash option works out to approximately 41 cents on the dollar for investors, while the equity option would bring approximately 43 cents.
Bondholder may not have much room to negotiate, he said, because Clayton & Dubilier is a financial investor, not a strategic one. In addition, it is necessary to substantially reduce Petrolanes' outstanding debt to make the restructured entity viable.
Sarah Nichols Duffy, a Lehman Brothers high-yield analyst, said bondholders should demand more equity.
"The plan is really a lowball offer," she said.
Quantum Chemical Corp. and First Boston each own 50% of Petrolane. For management and administrative purposes, Quantum merged it with Suburban, its wholly owned subsidiary. A rumor circulating recently held that Petrolane and Suburban would be spun off together, which seemed to make sense for synergistic reasons, some analysts have said.
But Mr. Mean, the Petrolane spokesman, said the announcement puts to rest any such rumors.
He said discussions with Petrolane's senior lenders and holders of the senior subordinated debentures on the proposed restructuring plans will begin as soon as possible.
Also under the proposal, affiliates of First Boston Corp. and Quantum, could co-invest in the equity of the restructured company on the same terms as the equity investment by Clayton & Dubilier's fund. Exercising those rights would give First Boston, Quantum, and their affiliates a 2-0% combined stake in the restructured company.
The restructuring plan's success hinges on several factors, he said. Petrolane's senior and subordinated debt holders must approve it with parties reaching "mutually acceptable definitive agreements" by Dec. 15. Under the plan, the restructuring must be substantially completed by April 15, 1992. Clayton & Dubilier must perform confirmatory due diligence and a mutually acceptable business plan must be devised to separate Petrolane from Suburban Propane.
The high-yield market over all was firmer, while the investment-grade market was quiet and up between 1/8 to 1/4 point, traders said.
Federal Farm Credit Banks issued $109 million of 7.27% notes maturing in 1996 and priced at par to yield 19 basis points over comparable Treasuries. Morgan Stanley & Co. managed the offering.
KFW International Financial issued $100 million of 8.20% medium-term notes due 1006 and priced at par to yield 58 basis points over comparable Treasuries. Merrill Lynch & Co. managed the transaction. The deal offering was rated triple-A by both Moody's and Standard & Poor's.
Wisconsin Public Service Corp. issued $60 million of 8.8% first mortgage bonds due 2021 yesterday. Noncallable for 10 years, the bonds were priced at par to yield 86 basis points over comparable Treasuries. Moody's rated them Aa2, while Standard & Poor's rated them AA-plus. Goldman, Sachs & Co. managed the offering.
Central Maine Power Co. issued $50 million of 8.5% noncallable notes due 2001. The notes were priced at 99.949 to yield 9.507% or 87.5 basis points over comparable Treasuries. Moody's rate the deal Baa1, and Standard & Poor's assigns a BBB-plus. Lehman Brothers managed the deal.