EMEA Loan House: BNP Paribas

When rumours arose of a US$100bn–$130bn transaction backing Verizon Communications’ acquisition of the remaining 45% stake that it did not own in Verizon Wireless from the Vodafone Group, the market wondered if such a thing was possible. Then, on September 2 2013, the talk became a reality that the market will remember for years to come. “It is really a once in a generation, a once in a lifetime deal,” said Anish Shah, global head of investment-grade loans at Morgan Stanley. JP Morgan, Morgan Stanley, Bank of America Merrill Lynch and Barclays were joint lead arrangers and joint bookrunners on the record-breaking financing. The 364-day facility was underwritten equally among the four banks and included a US$12bn bridge to loans and a US$49bn bridge to bonds. JP Morgan and Morgan Stanley were global co-ordinators, while JP Morgan was the administrative agent. The jumbo loan not only backed the largest acquisition ever, it is also the largest committed financing in history and constitutes the largest bridge loan of all time. While putting together the financing, which was done on a certain funds basis, it was important to come up with an amount that would encompass not only what the company needed, but also what was available in the market. “The importance in terms of the quantum of debt was really to strike the right balance between what the company wanted from a corporate finance perspective, but also, on the other hand, how much debt capacity there was,” said Claire O’Connor, Barclays’ head of loan capital markets Americas. “How much debt Verizon would be able to put on while retaining the ratings that they wanted, what we thought could be distributed in the bank market and what we thought the demand in the bond market was. If you put all those things into a blender, US$61bn is what came out.” Given the US$15.25bn that each underwriter committed, a size that is significantly larger than most M&A deals, a quick takeout in the bond market was paramount. “What we knew was that we were going to be asking a lot of banks for amounts that were well outside their comfort zones. These were commitment sizes that were probably larger than most deals,” said Peter Hall, global head of investment-grade loans at BofA Merrill. Syndication of a US$12bn term loan was launched the same week and tapped into banks’ strong appetite for funded assets. The following week, Verizon replaced the bridge-to-bonds component with US$49bn in bonds. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

One of the few Latin America acquisition financings to see the light of day over the last year, Minera Frisco’s US$1.1bn five-year loan stood out not only for its size in a market dominated by smaller trades and refinancings, but for the challenge of selling debt from a start-up with high leverage. As a spin-off from Mexican billionaire Carlos Slim’s conglomerate Grupo Carso, Minera Frisco was bound to attract attention in a market where banks covet assets. The strength of the controlling shareholder was a plus, but execution was far from simple. “It is a junior mining company that is not always easy, they had a lot of projects coming on line and banks are not used to taking that risk,” said Gonzalo Isaacs, head of Latin American loans at Bank of America Merrill Lynch, which acted as sole lead arranger and bookrunner. In-depth discussions with the company were required to get banks comfortable with a high leverage ratio, despite talk of an attractive initial margin of 300bp plus over Libor. The US$750m purchase of Mexican assets from Canada’s AuRico Gold, which the loan was funding, also had ratings agencies fretting about operational and execution challenges as the company started its modernisation projects. Against that backdrop, loan pricing levels were very difficult to set. Banks typically willing to accept such risks in return for higher margins were disinclined to participate because the loan was tied to a leverage grid, so it had the potential to drop to around 150bp once projects became fully operational. In addition, more risk-averse institutions were hesitant to extend credit to a company with a leverage ratio of close to five times, and with no independent audit for Minera Frisco’s resources several large and liquid Japanese institutions decided to give the transaction a wide berth. Leveraging Minera Frisco’s strengths and its sponsorship from Slim, who saw the spin-off as a pet project, BofA Merrill nevertheless was still able to entice a total of 10 banks into the deal. It did this partly by having the four senior MLAs – Barclays, JP Morgan, HSBC and Scotiabank – to take an active role in the syndication process. This not only gave them a share in the economics, but also allowed them to have face time with a borrower that potentially had more ancillary business down the road. By the time of signing in December 2012, banks completed a two-stage syndication process with commitments ranging from US$50m to US$212.5m in a deal that was 1.4 times oversubscribed and came with an out-of-the-box margin of 325bp over Libor. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

Global diversified natural resources company Glencore Xstrata’s US$17.34bn loan, which was signed in June 2013 was not only the largest general corporate purpose loan in the EMEA region for more than five years; it was also an all too rare example of a genuinely syndicated transaction in a market dominated by club deals. The merger of Glencore and Xstrata in May 2013 called for the creation of a new financing structure to replace the two companies’ existing facilities and match the needs of the enlarged group. Active bookrunners Barclays Bank, Commerzbank, Royal Bank of Scotland, Societe Generale and Santander were appointed to arrange the deal, with Royal Bank of Scotland as global co-ordinator. Time-wise, the deal had to fit into a tight second-quarter window before the end of June when Glencore’s short-term revolving credit was set to mature, but also after the merger took place. “This was something entirely new and at a difficult time in the market. Failure was not an option,” said Roland Boehm, global head debt capital markets at Commerzbank. The deal was launched into senior syndication in early April for an initial amount of US$12bn with 29 banks committing to US$500m tickets, providing critical momentum ahead of the launch of general syndication on April 30. Five ticket levels were offered in general, ranging from US$25m to US$350m, split over the one and three-year facilities. The deal raised nearly US$20bn from 80 banks, including 10 lenders from the Middle East and 17 lenders from Asia-Pacific, and was increased to US$17.34bn. “It was a classic, very broad and wide syndication that hasn’t been matched in recent years,” said Graham Lofts, head of international loan origination at Commerzbank. The loan appealed to a wide range of banks because it carried a unique hybrid structure to combine elements of commodity trader-style syndication through one and three-year facilities totalling US$13bn, and a typical mining sector-style syndication through a five-year US$4.35bn facility. The deal carried an innovative reverse yield curve pricing structure that saw the undrawn five-year facility pay a lower margin of 85bp than the 90bp on the three-year facility. Meanwhile, the one-year facilities paid margins of 80bp. The deal also featured the first utilisation fee structure seen on a commodity sector financing, on the three and five-year facilities, helping to keep margins down on undrawn funds. Notably, pricing levels and the utilisation fee structure were replicated on Swiss energy trader Vitol’s US$7bn loan refinancing in October 2013. “It was the best deal for the client, while also working for the market and introducing innovation,” said Jonathan Pughe, head of EMEA loan syndicate and sales markets at RBS. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

Nasdaq-listed Focus Media Holding’s US$1.725bn LBO financing overcame several hurdles to play a crucial role in ensuring the completion of the company’s US$3.7bn buyout – the largest ever involving a Chinese target – and successfully pass a vital test for the country’s leveraged finance market. The biggest challenge faced by the buyout stemmed from two factors: allegations from short-seller Muddy Waters in November 2011 that Focus Media overstated assets and paid too much for acquisitions, and an investigation by the US SEC into possible securities violations by the Chinese display advertising firm. The buyout financing is the largest ever for a Chinese company, and the loan market debutant lacked name recognition among foreign lenders, as well as hard assets in its underlying business, adding to the deal’s complexity. Given those issues, prospective lenders had to approach not only their risk committees to get credit approval but also their respective boards to take into account reputational risk. “The deal was severely complex and had significant challenges in that it featured a debut borrower with an asset-light business, an offshore holdco structure for a Chinese credit, regulatory challenges – and still achieved a great outcome in syndication,” said Benjamin Ng, head of debt syndicate, loans and acquisition finance at Citigroup. Another concern was the presence of multiple sponsors in the buyout consortium, which was borne out by the withdrawal of CDH Investments from the sponsor group at the last minute. This forced lenders to rework documentation and re-apply for credit approvals. Despite the challenges, the original arranger group comprising Citigroup, Credit Suisse and DBS Bank expanded to nine after a strong response from lenders at the underwriting stage. The strong reaction also prompted a change in the financing structure, as a US$200m–$300m bridge-to-bond was replaced by a US$200m standby letter of credit facility provided by DBS. The SBLC and a US$450m 12-month bridge-to-cash were not syndicated, leaving only a US$1.075bn five-year term loan to sell down. Excluding the US$450m bridge-to-cash, the net opening leverage amounted to 1.95 times, which combined with the fact that the entire LBO debt represented less than half of the total US$3.7bn funding required for the buyout, made the debt structure conservative. The deal launched into senior syndication in January 2013 and the momentum that had built up during the underwriting stage continued, with nine more lenders joining the by the end of March. Pricing was structured to make the deal as attractive as possible to lenders, with the top-level all-in at 611.45bp based on an initial margin of 525bp over Libor and an average life of 3.47 years. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

In February 2013, lead arrangers Bank of America Merrill Lynch, RBC, Barclays, Credit Suisse and UBS signed a financing package backing the US$25bn buyout of computer maker Dell by founder and CEO Michael Dell and private equity firm Silver Lake Partners. But what followed was far from straightforward. Activist investor Carl Icahn and Southeastern Asset Management entered the fray, triggering one of the most interesting takeover fights in years. Declining PC revenues and worries about Dell’s prospects meant the company’s bankers were faced with the scenario where their commitments would eventually turn into losses. Having to sit on a US$9.1bn commitment for seven months wasn’t much fun for the banks involved, particularly as Michael Dell and Silver Lake, keen to maintain a share price consistent with their buying plans, kept putting forth negative expectations about Dell’s future. “This fight is going on between Carl Icahn and Silver Lake and Michael Dell, where the company and the sponsor are talking down the credit. So they’re saying how terrible their company is. We have a lot of financing that we have to do at the same time,” said Marc Warm, co-head of US leveraged finance capital markets at Credit Suisse. Icahn and Southeastern were loudly offering shareholders an alternative leveraged recapitalisation that included a competing financing package. “Icahn could push higher, try to make people nervous, try to make people think our deal was going to be hung,” said AJ Murphy, co-head of global leveraged finance at Bank of America Merrill Lynch. “It was a very tricky dance. When the Icahn noise was at its peak, there were times when we thought our terms were out of the money.” The closely watched bidding battle, which was highly visible in the media, pushed the launch of the deal beyond the summer – later than had been hoped. But on September 9, Icahn ended his effort to block Michael Dell’s proposal. The financing was launched two days later. As the loan hit investors’ in-boxes, the arrangers began a campaign to address concerns about Dell’s valuation. Strong investor demand allowed Dell to cut the pricing on its covenant-lite loans – and increase their size – to cover a reduced first-lien bond and cancel an expensive second-lien bond. A euro-denominated loan was also added after reverse enquiry from European investors. After several tweaks, the US$9.1bn financing included a US$2bn revolver; a US$1.5bn US Term Loan C that targeted CLOs; a US$4.66bn Term Loan B; and a €700m Term Loan B. There was also a US$1.5bn first-lien note, while an extra US$150m in balance-sheet cash was also added to supplement equity from Dell. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com

The €3.3bn loan backing professional investor Joh A Benckiser’s acquisition of Dutch coffee and tea company DE Master Blenders 1753, the owner of Douwe Egberts coffee, is the largest leveraged corporate acquisition loan to be sold to bank and fund investors since 2007. The financing shunned the conventional bridge-to-bond route and opted for a euro-denominated, all-senior loan that created a new lender group for JAB and also met its aims of raising euro financing and avoiding the bond market and subordinated debt. The €7.5bn acquisition of former Sara Lee spinoff Master Blenders by JAB, the private holding company of Germany’s billionaire Reimann family, was a standout M&A deal in an unremarkable year for M&A lending. The €1bn fund tranche was also the biggest new-money institutional loan in EMEA in 2013. Bank of America Merrill Lynch, Citigroup, Rabobank and Morgan Stanley fully underwrote the loan, giving JAB certainty of funds to support the public-to-private sale only a year after Master Blenders was listed. “The deal was unprecedented in terms of the structure, the complexity of the business and the large size of the financing,” said Toby Ali, head of EMEA leveraged finance origination at BofA Merrill. The deal included a €1.25bn Term Loan A, a €300m revolver and a €1bn institutional Term Loan B2 that all paid 350bp over Libor, along with a €750m Term Loan B1 paying 375bp. Without an existing bank group, the arrangers started with a blank page. The deal was a difficult sell with leverage of six times post-acquisition – a relatively high level for a Ba3/B+ rated company. Sold as a deleveraging story based on management’s track record in cutting working capital, the deal was backed by the comfort of a €4.9bn equity cheque. JAB’s confidence in its ability to delever and refinance in two to three years was behind its decision to avoid bonds and restrictive call provisions. The deal was launched into strong markets in May, but in June market turbulence complicated syndication of the fund piece. It could have been placed after a strong early-bird phase but went to retail syndication, attracting 25 banks and many funds. Despite market conditions, pricing on the €1bn institutional tranche was flexed down by 25bp to 350bp after the deal raised a 1.5 times oversubscription from banks and a two times oversubscription from funds. Dollar provisions were scrapped as a result. “There was a challenge in execution of bringing the institutional market with the bank market and applying tension. The market was volatile but we still managed to do the investor tranche,” said Richard Basham, co-head EMEA loan structuring and syndications at Citigroup. To see the full digital edition of the IFR Review of the Year, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com