Asia-Pacific Loan: Malaysia Airports Holdings’ €500m loan
When Malaysia Airports Holdings began negotiations on refinancing existing debt at its Turkish unit in October 2014, it was clear that there would be plenty of challenges ahead, but a novel approach to the loan resulted in a gratifying outcome six months later.
MAH’s discussions centred on debt at Istanbul Sabiha Gokcen International Airport and the change of control clauses that would be triggered after the Malaysian borrower opted to buy the 40% stake it did not own in the airport. One of the requirements for the acquisition was the approval of ISG’s existing lenders.
Refinancing the existing debt was therefore critical to MAH’s plan to take complete control of ISG. However, the financing faced a major hurdle as MAH could only provide a partial guarantee commensurate to the 60% stake it held in ISG.
The solution came from MAH’s M&A adviser Deutsche Bank, which introduced a toggle to address the issue – a feature that was unique to the Asian loan market.
The toggle allowed MAH the flexibility to convert the partial guarantee into a full guarantee at a time of its choosing. The facility agreement also provided MAH with a long-stop date where the borrower could elect to provide a full guarantee at the original margin or continue with a partial guarantee with a step-up in margin.
Employing the toggle gave MAH the option to lock in long-term funding at a lower cost of debt for ISG, which was paying north of Libor plus 500bp on its existing loans. Moreover, the refinancing was priced as Asian risk with or without MAH being able to provide the full guarantee.
In late December 2014, Deutsche, BNP Paribas and CIMB Bank signed and pre-funded the €500m seven-year loan to refinance the existing debt at ISG. By mid-January, the trio launched the amortising loan into general syndication offering a top level all-in pricing of 285bp, based on a margin of 275bp over Euribor and an average life of five years.
The €500m financing proved popular among lenders, and in early March, the state-owned airport operator embarked on a reverse flex in the wake of strong appetite. The margin was cut to 250bp over Libor, with the top level all-in pricing reduced to 260bp as a result.
Reverse flexes are seldom seen in the Asian loan market – the previous occurrence was a 25bp cut in the pricing on a US$200m three-year onshore debut loan for Fubon Bank (China) in August 2014.
The appeal of MAH’s financing was also evident from the fact that all lenders committing in general syndication on the original loan renewed their commitments to the deal despite the reduction in the pricing.