DLJ converts waste-to-energy to cash

The New York merchant banking group, along with co-investor AIG, has signed an agreement to sell waste-to-energy business American Ref-Fuel Holdings to strategic acquirer Danielson for a total enterprise value of $2 billion.

DLJ Merchant Banking Partners has agreed to sell waste-to-energy portfolio company American Ref-Fuel Holdings Corp. (ARC) to Danielson Holding Corporation, a publicly traded conglomeration of energy, financial services and specialty insurance businesses, in a transaction valued at approximately $2 billion (€1.5 billion).

Under the terms of the deal, Danielson will pay $740 million in cash to ARC shareholders and assume $1.2 billion of net debt. Based on ARC’s adjusted pro forma EBITDA of $275.5 million (excluding holding company expenses) for the twelve months ended September 30, 2004, the transaction represents an enterprise valuation of 7 times EBITDA.

The deal is expected to close in the second quarter of 2005.

According to documents filed with the Securities and Exchange Commission, DLJ owns 60 percent of ARC while co-investor AIG Global Investment Group, through its private equity fund AIG Highstar Capital, holds the balance. The two firms initially acquired a 50 percent interest in ARC from Duke Energy in March 2003. DLJ and AIG each contributed $75 million of equity to the transaction, which was valued at $327 million.

Seven months later, through a series of complex transactions, DLJ and AIG purchased the remaining 50 percent interest in ARC from Fox Paine portfolio company United American Energy Holdings. Although terms of the deal were not disclosed, SEC filings indicate that $392 million of payments were made to pay United shareholders and extinguish existing debt.

In December 2004, Credit Suisse First Boston, the parent company of DLJ Merchant Banking, announced that it would spin off the buyout group as part of a strategic effort to remove potential conflicts of interest with the bank’s investment banking clients. DLJ Merchant Banking is currently investing DLJ Merchant Banking Partners III, a 2001 vintage fund with capital commitments of $5.3 billion.