Banks Arrange $1.5B HY Package For Entergy

A bank consortium is arranging a $1.5 billion high yield debt package for Entergy that will be issued to "third-party investors," according to a Securities and Exchange Commission filing.

BNP Paribas is leading the financing, with Citigroup, Goldman Sachs, Bank of Nova Scotia and Mizuho on the right side of the deal. It could not be determined when the debt will be issued to investors. A spokeswoman from BNP declined to comment.

The New Orleans-based electric company plans to use the proceeds to spin-off a nuclear power company with six nuclear reactors. The company will be named Enexus and will provide electricity to wholesale customers.

Entergy also plans to borrow $3 billion. However, this debt will only be used to buy back or exchange current outstanding debt, to repurchase Entergy shares, or for other corporate purposes. It couldn't be determined whether this debt will be marketed to investors.

Entergy is rated BBB, two notches above junk, by Standard & Poor's.

Higher-quality deals, such as a recently-syndicated $400 million term loan B for Precision Drilling, have been in vogue among investors because of the downturn. These deals have been priced at extreme levels for investment grade credits. The Precision Drilling term loan B was broken into two tranches, with a $75 million tranche priced at Libor plus 800 bps, with an OID of 85, and a $325 million tranche priced at Libor plus 600 bps, with an OID of 80. The proceeds from the loan went to help Precision Drilling acquire Grey Wolf. In addition to the steep discounts, the banks-Deutsche Bank, the Royal Bank of Canada, UBS and Goldman Sachs-included a Libor floor of 3.25%.

More than 70% of respondents to a recent Reuters Loan Pricing Corp. survey said spreads for triple-B-rated companies increased 30% or more in 2008 compared with 2007.

Entergy's net cash flow in the third quarter of 2008, the most recent report, was $1.8 billion compared with $663 million in the third quarter 2007. As of Oct. 28, the company's year-to-date cash flow was $2.7 billion, compared with $1.6 billion over the same period in 2007.

The regulated U.S. electric utility industry, which Entergy is part of, finished 2008 in a guarded state, having weathered the year's financial turmoil while bracing for more financial adversity in 2009, S&P said in a Jan. 5 report. Despite recent widening for all investment-grade corporate debt, spreads on utility debt are tighter than the average for all corporate issues. Most in the industry, the report said, have strong balance sheets, prudent financial policies, and effective liability management.

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