RLPC-Ineos pays up and adds covenant to clear loan waiver

By Tessa Walsh

LONDON, Dec 3 (Reuters) - Ineos Group [INEOSP.UL] has given in to investors' demands and improved the terms on a key waiver to its 7.62 billion euros ($9.63 billion) leveraged loan that will allow the company to avoid breaching covenants, banking sources said on Wednesday,

Ineos Group, the world's third-largest chemicals group, has boosted the interest margin and added a new covenant to assuage investors' concerns about increased risk as the chemicals sector confronts an unprecedented slump, they added.

Ineos Group asked its bankers to grant a temporary waiver in mid-November and give a two-quarter covenant holiday that would give Ineos greater visibility after first quarter trading to produce a new business plan and permanently reset its loan covenants.

Ineos is now offering an additional margin payment of 175-225 basis points (bps) above its existing loan margin as opposed to the 100-125 bps originally offered.

The move will substantially increase the company's borrowing costs and Ineos will now pay considerably more than the 80 million euros estimated cost of the original proposal.

If the waiver is passed, the company will pay 400 bps on its term loan A and revolving credit, 450 bps on its term loan B, 500 bps on its term loan C and 600 bps on its second lien loan.

Ineos has also introduced a 5.25 times leverage test for the end of the year that has been adjusted to reflect customer destocking.

The covenant was added in response to investors' concerns that no covenants would apply in the next six months during a period of heightened risk as the company readies its new business plan.

"Investors want a guideline and benchmark in the sand for performance," a banker close to the waiver said.

Ineos' debt service covenant has been left in place and will be tested on March 2009. The company has a strong cash position with around one billion euros of cash on the balance sheet and was never in danger of payment default, bankers close to the deal said.

"Ineos was not anywhere near to payment default, the covenants when written never envisaged this kind of market disintegration. Ineos has enough cash to service its debt and will continue to do so," a banker close to the waiver said.

Ineos 200-plus syndicate are now expected to approve the changes to the waiver, which will be voted on on December 9.

"We're highly confident that this is going to get done now," the banker close to the waiver said.

Ineos was not immediately available for comment. (Reporting by Tessa Walsh; Editing by Hans Peters)