The NBC Universal joint venture with General Electric and Comcast has been one of the more important corporate borrowers in the last six months. It was integral in helping to reignite the investment grade loan market in February 2010 with its US$9.8bn credit facility, and in April, it priced a US$4bn bond offering just as sovereign debt fears were reaching a peak. That credit-market savvy has enabled them to put together one of the more daring media ventures in years. Timothy Sifert reports.
When NBC Universal priced a three-part US$4bn bond on April 27 2010 it was the culmination of a lot of work on the part of NBC, General Electric, Comcast and the bankers who put together the media joint venture.
As a result of the bond offering and a generally creative and aggressive borrowing strategy the NBC-Comcast venture will come together and promises to be a sea change for the media industry. It also allows GE to focus again on its core businesses by gradually relinquishing its ownership of the broadcast powerhouse over the next seven years.
Initially, the JV will be 51% owned by Comcast and 49% by GE, its current majority owner. Comcast will manage it.
In December 2009, JP Morgan, Goldman Sachs, Morgan Stanley, Bank of America Merrill Lynch and Citigroup committed to provide the US$9.85bn financing package to back the deal. The deal is one of the largest bank loan transactions to be completed in the last twelve months.
The facility comprised a US$750m three-year revolver, a US$6.1bn 364-day bridge loan and US$3bn three-year amortising term loan facility. It was not until February that the bankers, led by JP Morgan, opted to launch the deal into the market. The deal pays Libor plus 225bp. And despite difficulties in their domestic bank loan markets, European and Asian banks joined the transaction. In syndication lenders were offered 75bp for commitments of US$100m or 50bp for US$50m.
Timing is important for the somewhat complicated JV agreement, and getting the financing in place promptly was indispensable. GE is contributing NBC Universal businesses worth about US$30bn to the venture. Comcast is providing its cable networks and certain digital media properties, together valued at US$7.25bn, and a US$6.5bn cash payment to GE.
Through the bank and bond markets, NBCU has borrowed US$9.1bn to distribute to GE, which will buy Vivendi’s 20% interest in NBCU for US$5.8bn. If the GE-Comcast transaction is not closed by September 2010, GE will buy 38% of Vivendi’s stake for US$2bn, then the remaining 62% for US$3.8bn when the transaction closes.
The merger agreement also allows GE to force the joint venture to buy one half of its stake at year 3.5 and its remaining stake at year seven. NBCU is only obliged to purchase GE’s stake if the joint venture’s leverage is 2.75x or less and ratings are investment grade. However, Comcast will backstop the purchase with US$5.75bn.
In order to make sure all the deal deadlines could be met, NBC went to the bond market as soon as possible to trim down the costly, short-term bridge facility. With hindsight, the week chosen might not have been the most fortuitous: the downgrades of Greece and Portugal in April sent the equity and credit markets reeling, and did the same to NBC’s prospects.
Nonetheless, investors liked the story behind the deal and the US$4bn 144a trade performed well. The three tranches were priced at the tight end of guidance amid strong demand for M&A-backed corporate paper. For the weeks leading up to the deal, investment-grade investors had to make do with financial paper, with hardly an industrial name in the market.
The deal allowed the media giant to cut its US$6.1bn bridge loan to US$2.1bn. The three active bookrunners on the bonds, Goldman Sachs, JP Morgan and Morgan Stanley, also led the bridge loan. The banks took US$1.0675bn of the US$6.1bn commitment apiece. Passive bookrunners Bank of America Merrill Lynch and Citigroup took US$610m of the loan each.
NBC had an incentive to replace the loan, of course. At current ratings it pays Libor plus 225bp. Each 90 days after the closing of the loan the spread would increase by 50bp.
In the end, the US$1bn 3.65% five-year notes printed at Treasuries plus 128bp, the US$2bn 5.15% 10-year at plus 148bp and the US$1bn 6.40% 30-year at plus 183bp. All spreads were 2bp less that the guidance midpoint. In the grey market, the tranches were quoted at 123bp-120bp, 146bp-141bp and 180bp-175bp, respectively.