SoftBank lines up mammoth loan for OpenAI deal
SoftBank Group is once again pushing the boundaries of the loan market in Asia Pacific with a mammoth financing of up to US$40bn to fund a new investment in OpenAI, in what could become the second-largest bridge facility from the region.
Terms of the borrowing with a tenor of 12 months are still being finalised and it remains to be seen how many lenders will be drawn by the Japanese technology investment giant's pull this time, given the enormous size and the aversion to risk that has set in since the outbreak of war in the Middle East on February 28.
SoftBank is no newcomer to giant financings, and the size of the latest deal is slightly under the US$41.5bn it raised from three jumbo loans last year. One of those – a US$15bn one-year loan for its investments in OpenAI and US chipmaker Ampere Computing – is due next month.
Lenders on that loan are expected to renew their exposure to the company through the latest borrowing.
“We are keen to join as the one-year bridge is a high-profile opportunity to book short-tenor assets and quickly recycle our balance sheet,” said a Hong Kong-based senior loans banker. “We also expect a near-term takeout through bonds or term loans and are mindful of SoftBank’s potential to leverage other assets amid OpenAI’s path toward an IPO or further equity rounds.”
Some banks will view the latest financing as an opportunity to deepen their relationship with SoftBank, which is a frequent borrower across M&A, equity and structured financings. For pure lenders, the calculations may be different.
“For investment banks, extending loans, even at painful terms, can serve as an entry ticket to secure a role as a bookrunner on an IPO,” said a Tokyo-based senior banker. “But for lenders without that upside, it is a tough sell.”
OpenAI is preparing what could be one of the largest IPOs in US history, with a potential valuation ranging from US$730bn to as high as US$1trn, according to reports. The company has begun informal discussions with major investment banks and has hired Cooley and Wachtell Lipton as legal advisers, pointing to a possible listing as soon as the end of this year.
Unprecedented size
One banker noted that pricing on SoftBank’s latest loan will need to come in higher than its previous financings, given the unprecedented size. Even so, bankers said that because the deal is so large, modest fees and margins will still translate into substantial revenues for lenders.
However, even if pricing is attractive, some Japanese lenders could face constraints around debt capacity and the complexity of SoftBank's business.
“Over the past few months, Japanese regional banks have struggled to attract deposits and have begun tightening on managing their assets,” said another Tokyo-based senior banker. “Under such circumstances, SoftBank is not a name that is a top priority.”
Notwithstanding the motivation for participation, SoftBank will need an army of lenders for the borrowing to cross the finish line. At US$40bn, its latest bridge financing will be the third-largest loan from Asia Pacific, according to LSEG LPC data.
The largest from the region is a credit line of Rmb1trn (US$145bn) that Chinese state-owned automaker FAW Group obtained from 16 domestic banks in October 2018 as part of a government plan to revitalise the economies of China’s northeastern provinces.
Fan favourites
Japan has transacted giant bridge loans previously, but the breadth of distribution has been mixed. In October 2020, Nippon Telegraph & Telephone raised a one-year unsecured bridge loan of up to ¥4.3trn (US$40.7bn then) to back its acquisition of NTT DoCoMo. Despite the size, the deal closed as a club with only six Japanese lenders – Development Bank of Japan, Mizuho, MUFG, Norinchukin Bank, Sumitomo Mitsui Banking Corp and Sumitomo Mitsui Trust Bank.
In June 2018, Takeda Pharmaceutical raised a US$30.85bn bridge facility backing its £46bn acquisition of London-listed rare-disease specialist Shire. JP Morgan underwrite 50% of the bridge, while MUFG and SMBC committed equally to the remainder. Twenty-two domestic and international banks committed across multiple tranches, including a US$15.35bn portion that was syndicated.
SoftBank's latest borrowing is expected to feature lenders from multiple geographies, including Barclays, JP Morgan and Mizuho. Mizuho led the US$15bn bridge loan for SoftBank in April that attracted 20 lenders in syndication. A dozen of those lenders took US$850m or more each, accounting for US$11.45bn, or slightly more than three-quarters of the deal.
SoftBank completed two more jumbo borrowings a few months after that deal: a US$6.05bn-equivalent dual-currency one-year commitment line in September, and a US$20bn two-year share-backed loan in the fourth quarter, which carries a pledge against shares in Nasdaq-listed chip and software designer Arm Holdings.
Its previous largest loan was in November 2017 when it raised ¥2.65trn from a four-tranche borrowing that attracted 21 banks in senior syndication.
Negative outlook
SoftBank was rated Ba1/BB+ (Moody's/S&P) at the time. Moody’s does not rate the company anymore, but S&P continues to rate it at BB+.
However, on March 2 S&P revised the company’s credit outlook to negative, citing concerns that its latest investment round in OpenAI might lower the quality of its US$320bn investment portfolio, impacting liquidity and debt. S&P said the latest investment in the ChatGPT owner could add four percentage points to its loan-to-value ratio, which the rating agency puts at 33%, pushing it over the 35% threshold for a downgrade.
Should the rating suffer a downgrade, it could complicate SoftBank’s future financings in the international bond market. Its largest foreign currency bond transaction is a US$7.4bn-equivalent Reg S only high-yield corporate deal printed in July 2021.
Following the latest investment in OpenAI, SoftBank said in a statement that it plans to “initially” fund the investments through bridge loans and “other financing arrangements from major financial institutions”, which will be “replaced over time through the utilisation of existing assets and other financing measures”.