The jumbo US$7.25bn credit facility sneaked through a turbulent market and was priced in September just before spreads blew out due to a combination of regulatory issues, loan fund outflows and intensifying global capital markets volatility.
“The interesting thing about it is that Burger King is a well-known commodity, [the deal] traded well, with way more leverage, and not much lower rating, and still got done in a tough environment,” a buyside trader said.
JP Morgan and Wells Fargo led the deal, which included a US$6.75bn term loan and a US$500m revolver. The 3G Capital-owned restaurant chain also funded the transaction with US$2.25bn of 6% senior notes due in 2021 and US$3bn of preferred equity financing from Warren Buffett’s Berkshire Hathaway.
Burger King’s timing was impressive. The company decided to forge ahead and market the jumbo deal before the underlying M&A trade closed to lock in favourable rates before the market changed – and that decision paid off.
Banks marketed the deal aggressively at 350bp over Libor, which was potentially a tough sell for a company with a B2/B+ rating looking to leverage up to above 7.0 times – even with support from big names like Warren Buffett and the financial clout of private equity firm 3G, along with strong Ebitda and a well-known brand name.
Investors pushed back immediately and asked for bigger incentives to make room for the huge loan in their portfolios. Burger King obliged by adding a ticking fee that included the full spread plus Libor floor after 30 days to give investors income on their commitments before the M&A trade closed. It originally offered no ticking fee for the first 30 days with step-ups to the full spread and Libor floor after day 120.
Burger King was pragmatic and made several other concessions, including extending call protection, removing the most favoured nation sunset clause and replacing step-ups with the ticking fees, all of which would become commonplace in October’s market correction.
Although the concessions were expensive for Burger King, the company saved money by giving investors what they were looking for as spreads had blown out by 100bp–150bp for new issues in mid-November.
The new company will be headquartered in Canada in a tax inversion deal, which was one of the key M&A themes of 2014 and another example of perfect timing, as the US government announced new rules to clamp down on tax inversion trades shortly after Burger King’s transaction.
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