Xstrata drills for US$6bn loan waiver

Xstrata has asked its banks to allow US$6bn of existing syndicated loans to stay in place as it waits for approval of its US$90bn merger with Glencore, bankers said. Lenders are expected to agree to waive change of control provisions that will be triggered when Xstrata’s merger with Glencore completes and that could otherwise prompt a loan refinancing.

The waiver will allow Xstrata to wait until the merger is finalised before consolidating its jumbo loan, along with billions of Glencore loans, into a massive new syndicated loan and bond financing.

Xstrata, rated BBB+ and Baa2 by Standard & Poor’s and Moody’s, and Glencore, rated BBB and Baa2, are some of the biggest borrowers in the syndicated loan market and the waiver is expected to be agreed as a formality by banks eager to lend to one of the world’s largest companies.

“Lenders won’t stand in the way of the merger but when Xstrata and Glencore are combined, it’s understood that they will refinance their loans as they have more than they need. This will help banks’ exposure”

Xstrata’s US$6bn loan will also act as a backstop facility to show that the company has enough working capital and liquidity for the next 18 months, a banker close to the deal said.

“The waiver will allow Xstrata to use that money. The revolving credit needed to be backstopped to allow the accountants to issue a working capital statement,” he added. 

Glencore has also lined up a similar US$6bn backstop loan through financial advisers Citigroup and Morgan Stanley to show that it has sufficient working capital, bankers said.

Xstrata’s senior management has already called its banks to offer a fee to agree the waiver by February 23, they added.

Deutsche Bank and JP Morgan are acting as financial advisers to Xstrata on its merger with Glencore, which is expected to get the green light despite recent opposition from shareholders.

Lucrative loan

The new multibillion loan for the combined company is a lucrative piece of business that will confer relationship kudos and give access to significant ancillary business with the mining and commodities trading giant.

Despite their enthusiasm to lend, banks are keen to reduce their exposure to the combined company, which has previously been reliant on bank loans and is also expected to refinance some of its debt in the bond market.

Banks that have lent up to US$1bn to both companies are keen to reduce their overall exposure to avoid blowing through lending limits for individual companies, sectors, countries and ratings.

“This is the final piece in the jigsaw,” a senior loan syndicator said. “Lenders won’t stand in the way of the merger but when Xstrata and Glencore are combined, it’s understood that they will refinance their loans as they have more than they need. This will help banks’ exposure.”

Xstrata, which has net debt of US$8.1bn, agreed a US$6bn, 5+1+1-year loan in September 2011, which RBS co-ordinated. Glencore signed a US$11.875bn loan refinancing in May 2011, which consisted of a US$3.54bn, 364-day revolver and a one-year extension to an existing US$8.34bn, three-year loan. The company has net debt of US$12.9bn.