North America Leveraged Loan: ION Trading's US$2.1bn-equivalent acquisition loan

After a long and twisty M&A road, including a duel with a mouse, US cable company Comcast took control of British pay-TV company Sky in October, and the £30.6bn cross-border deal was backed by one of the largest and most intricate investment-grade loan packages of the year. Comcast won Sky after a heated competition with Rupert Murdoch’s Twenty-First Century Fox, shifting full attention to its quest for the company after dropping another high-profile battle, with Walt Disney, to buy most of Fox’s media assets. Disney had won the media assets, before Comcast engaged in a bidding war that it ultimately ended in July in favour of sweeping up Sky. Comcast’s bid for the Fox media assets, at US$66bn, would have been the largest all-cash merger ever. By buying a controlling interest in Sky, one of Europe’s biggest media companies, Comcast is boosting its entertainment, distribution and technology leadership, expanding its international footprint to better compete. “In many ways this deal defined the market in terms of what lenders were looking for in terms of enhanced relationship returns, and it played off the cross-border M&A theme, and that generates loans and opportunities not just for US-based banks but also European banks as well as large international institutions,” said a banker involved in the financing. Comcast ultimately backed its Sky acquisition with US$39bn-equivalent of loans, announcing the financing in September. The deal comprised a £12.9bn 364-day bridge loan, £7bn of term loans – including a £3bn three-year term loan and a £4bn five-year term loan – a US$6bn four-year term loan and a US$7.611bn revolving credit facility. Comcast had initially bid £22bn for Sky in February, with a £23bn loan financing that included a 364-day unsecured bridge loan of up to £16bn and £7bn of term loans, via lead banks Bank of America Merrill Lynch and Wells Fargo. When the bid was raised in July to £25.9bn, the increase was funded by Comcast’s existing US$7bn revolving credit facility that was arranged in May 2016 by JP Morgan as administrative agent and joint lead arranger, and joint bookrunner along with Citigroup, Morgan Stanley, MUFG, Wells Fargo and Mizuho. The revolver can be hiked up to US$10bn, is due in May 2021, and can be extended until May 2023. In August, Comcast put the new US$6bn four-year term loan in place, repaying £3.1bn of April’s £16bn bridge loan via BAML and Wells Fargo. By early October, Comcast had tapped the market for permanent financing, issuing US$27bn of bonds, looking to show the markets that it was following through with deleveraging plans. The 12-part bond deal drew nearly US$88bn in investor orders. To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

Brazilian energy giant Petrobras crossed a new frontier in its debt financing efforts this year as its first-ever revolving credit facility expanded the company’s international banking relationships. The US$4.35bn five-year loan signed in March was the second-largest loan out of Latin America and the Caribbean in 2018 after Suzano’s US$9.2bn acquisition financing. The transaction also marked a change in direction away from less transparent bilateral loans with international banks that Petrobras previously relied on. “This was a truly syndicated facility,” said Andre Silva, a managing director at BNP Paribas. “In the past, Petrobras has done bilaterals, but the maturity on [the RCF] was longer than the average bilateral financing.” Petrobras initially sought just US$3bn from the bank market, but the transaction received US$5.75bn in commitments from 17 institutions, which allowed the company to increase the loan to US$4.35bn. “Petrobras attracted a diversified group of banks to support its liquidity needs, and to provide support for rating agency purposes,” said Jaime Frontera, a managing director at Credit Agricole. The move to a widely-syndicated credit facility underscores Petrobras’ commitment to improving its liquidity position and standing among the major credit rating agencies. “[Petrobras] has shown the market they have access to liquidity,” said Silva. “It is very important to rating agencies that [Petrobras] has access to liquidity if conditions deteriorate.” With the international bond market proving costlier in 2018, Petrobras showed it could manoeuvre through new and untried asset classes. Petrobras usually taps bond investors twice a year, but political instability has priced that option out of reach. The security of a five-year revolver termed out its debt profile and removed the need for Petrobras to complete its 2018 funding requirements in an expensive and volatile bond market. The revolver also set a blueprint for other Brazilian companies seeking more cost-effective sources of funding. Petrochemical company Braskem received US$1bn from a senior unsecured revolver in May 2018 and pulp and paper exporter Klabin launched a US$1.1bn revolver into syndication in November. Petrobras’ loan was priced at 170bp over Libor, but this is tied to the company’s Ba3/BB–/BB– credit ratings. The price increases by 15bp if Petrobras draws between 34% and 66% of the facility. If the company draws 67% or more of the five-year loan, pricing will jump by 30bp. Joint bookrunners BNP Paribas, Citigroup, Credit Agricole and Mizuho syndicated the facility among 13 financial institutions from Asia, Europe and North America. To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

UK-based industrial turnaround specialist Melrose’s £4.5bn-equivalent loan backing its £8bn hostile takeover of engineering firm GKN was carefully designed to cover all potential outcomes, providing flexible long-term funding at a favourable price. As the largest hostile takeover in the UK since Kraft’s hotly debated purchase of Cadbury in 2009, Melrose’s acquisition of GKN attracted intense scrutiny from politicians, the tabloid press, unions and key customers. Confidentiality was critical to the success of the deal. To limit the risk of a leak to the public markets, Melrose approached just two banks, Lloyds and Royal Bank of Canada, in mid-December 2017 about financing the takeover. Within eight days the two banks had secured approval to underwrite 100% of the facilities before the Christmas break, giving Melrose the time to work on other parts of the hugely complex deal. “This was a bold underwrite, with an extremely high profile, where the scope for something going wrong was quite high,” said Tim Cottrell, head of European leveraged capital markets at RBC Capital Markets. Any misstep or flaw in the financing would have been seized upon by GKN’s defence advisers. Unusually for a large acquisition financing, the deal did not feature a bridge facility, but comprised a £1.5bn 3.5-year term loan and a £3bn-equivalent five-year revolving credit facility denominated as £1.1bn, US$2bn and €500m. The loan was flexible to the proportion of shares to cash in the offer, while there was enough dry powder to cover an increased bid and the potential redemption of GKN bonds. Leverage was not pushed too far, remaining in line with Melrose’s low leverage strategy and avoiding negativity. Fees were structured so that lenders would be rewarded for initial commitments, while Melrose would receive a favourable rebate on any cancelled debt. Pricing was competitive, despite substantial uncertainty over the M&A process. The term loan paid an opening margin of 140bp over Libor while the revolver paid 165bp over Libor/Euribor. The hostile nature of the bid created uncertainty over the depth of market liquidity available for the deal. This was further complicated as a number of banks were relationship lenders to both parties. “Some banks won’t do hostile financings, there was also GKN’s core relationship banks to consider; a difficult dynamic, how were they going to react?” Cottrell said. Syndication was launched on January 26 with a bank meeting on February 6. Initial commitments were due by February 23, but banks only formally signed into the deal on April 30, preserving confidentiality for GKN banks coming into the transaction. The financing closed strongly oversubscribed with a group of 25 banks joining the two bookrunners. “It was extremely intense. As far as the mechanics of M&A are involved, this was about as exciting as it gets.” Cottrell said. To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

Citigroup’s forte is the selective use of its balance sheet with a sharp focus on syndicating risk, which came under increasing scrutiny amid volatile financial market conditions, fewer lending opportunities and added pressure to generate income and meet budgets. “Citi’s strength is evident in the depth and breadth of deals it closed, as well as thought leadership demonstrated in bespoke structured financing advisory. For example, bridge-to-bond, liability management and loan/bond/equity combo solutions for borrowers’ evolving needs,” said Benjamin Ng, Citigroup’s head of debt syndicate and acquisition finance in Asia. The bank started the review period well, wrapping up a US$4.1bn leveraged financing supporting the acquisition of GLP, Asia’s biggest warehouse operator. Citigroup acted as equal underwriter and joint M&A adviser with one other bank, navigating structural challenges for the financing and the unique nature of the business. The loan, which made possible one of the largest leveraged buyout loans from Asia, closed in December 2017 with 13 other lenders, representing a good mix of US, Asian and European banks. Another event-driven financing that stood out was a NT$90bn (US$2.91bn) five-year term loan in April backing Advanced Semiconductor Engineering’s planned merger with peer Siliconware Precision Industries. Citigroup was coordinator on a facility that attracted 37 other banks and is Taiwan’s biggest and most widely syndicated acquisition financing ever. Citigroup was also instrumental in a US$2.85bn 18-month bridge loan backing state-owned Indonesian miner Inalum for its purchase of a controlling stake in Freeport-McMoran’s local unit. The loan was cancelled in November after Inalum raised a US$4bn debut offshore bond on which Citigroup was one of the three global coordinators. In neighbouring Malaysia, Citigroup acted as sole coordinator and underwriter on a US$310m debut acquisition loan in March for Top Glove, the world’s largest rubber glove manufacturer, for its acquisition of Aspion, the world’s largest surgical glove maker. The loan was split into conventional and murabaha structures, helping Top Glove maintain its mix of conventional and Islamic debt. In May, Citigroup was one of two physical bookrunners on the first sterling-denominated Term Loan B for an Australian LBO – a £301m seven-year covenant-lite facility to finance private equity giant Carlyle Group’s purchase of Accolade Wines, the fifth-largest wine producer in the world. India proved a fertile hunting ground for Citigroup despite intense competition and pricing compression. The US bank picked its spots well in the country, bagging lead roles on unusual opportunities such as the repricing and conversion of a US$250m brownfield project loan from 2016 for Fiat Indian Automobiles into a corporate financing. The exercise marked a rare amendment of an external commercial borrowing under Indian regulations. Sizeable financings from frequent borrowers such as conglomerates Aditya Birla Group, Reliance Industries and Tata Group featured top-heavy arranger groups, but Citigroup distinguished itself. For example, it was one of the three key banks among 20 lenders on a US$2.275bn financing in November for US-based aluminium producer Novelis, an indirect subsidiary of Aditya Birla Group, for its purchase of rolled aluminium products supplier Aleris. Citigroup also avoided pitfalls arising from India’s largest banking scandal that soured sentiment among lenders for financing sector borrowers. The US bank was one of the nine leads on a US$750m five-year loan for India’s largest mortgage lender Housing Development Finance Corp that closed in November with 12 other participants. In August, Citigroup helped Charoen Pokphand Indonesia, the country’s largest poultry feed maker, to complete a US$630m-equivalent liability management, repricing and extension exercise for loans from 2014 and 2015. Another example of Citigroup’s focused approach was

The financing for Asia’s biggest private equity buyout raised the bar for the region’s leveraged finance industry, illustrating the kind of scale and complexity that the Asian loan market can offer to cash-rich financial sponsors. A consortium of Chinese investors wrapped up a US$4.108bn loan for the acquisition of GLP in January 2018, marking the end of a two-year campaign to take control of the Singapore-listed logistics provider. Chinese PE firms Hopu Investment and Hillhouse Capital, and SMG Eastern – an entity under the full control of GLP CEO Ming Zhi Mei – sealed the LBO loan in a relatively short time-frame, but the financing still provided a tough test for lenders given the structural complexities. GLP’s appeal as Asia’s biggest warehouse operator was not in doubt. However, the unique nature of its business, with operations in multiple jurisdictions, and its existing debt of around US$4bn posed significant hurdles. GLP is not just a developer and owner-operator of logistics facilities, but also one of the largest real estate fund managers in the world. When the US$4.10bn loan emerged in mid-2017 via equal underwriters and M&A advisers Citigroup and Goldman Sachs, GLP had a global portfolio comprising 700m square feet of logistics facilities in China, Japan, Brazil and the US, among others. The buyout loan for Nesta Investment Holdings, the bidco, was subordinated to the existing debt, which resided at several operating entities in different geographies with some of the facilities carrying change-of-control clauses. The leads had to structure the financing taking into account the Ebitda and the attributable value of the properties GLP owned directly as well as via its real estate funds. The combined debt at the bidco and the operating company represented leverage of around 13 times. For the year ended March 31 2017, GLP’s Ebitda had totalled about US$489m and it had investment properties valued at US$14.70bn. The financing structure also had to ensure that GLP’s investment-grade ratings – Baa2/BBB+ (Moody’s/Fitch) at the time the deal was launched – were not impacted. Conviction that the company would remain a solid Triple B credit was reflected in the pricing, security and covenant package on the loan. The pricing was extremely tight for a leveraged deal, with the top-level blended all-in at 135.4bp based on a blended interest margin of 124.06bp over Libor and blended tenor of 3.095 years. The loan did not carry any security or flex on the leverage covenants. The deal picked up momentum, with seven other lenders joining the arranger group well before launch into syndication in September. It attracted another six banks in general syndication before closing in December, with the final group representing a mix of lenders from the US, China, Japan, Europe and Taiwan. To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

The €5.9bn loan package backing the public-to-private buyout of Denmark’s TDC redefined the capacity of Europe’s institutional loan market. In February 2018, a consortium led by Macquarie Infrastructure and Real Assets and Danish pension funds PFA, PKA and ATP made an offer to buy TDC, which valued its equity at €5.4bn. The debt financed Macquarie’s vision of turning TDC into a utility-like infrastructure company providing open fixed and mobile networks that all telecom operators will be able to use, while scaling down its customer businesses. “This was a visionary deal that will reshape the telecom sector,” said Mike Masters, managing director at Barclays. ”This deal could change the way we look at the telecom universe in Europe.” The €7bn loan and bond package funded the share purchases of the take-private deal and refinanced TDC’s existing debt. The euro and US dollar term loans totalled €3.9bn-equivalent and were the largest post-crisis TLBs completed for a Single B rated company, while the €2.7bn tranche highlighted the growing maturity of Europe’s institutional market as the largest Single B covenant-lite tranche ever raised. The loan also included a €500m revolver, a €100m super-senior revolver and a €1.4bn-equivalent bridge to bonds. €1bn of existing bonds were also rolled over. The deal was a non-traditional buyout. Macquarie is aiming to hold TDC for more than 10 years and invest heavily to develop Denmark’s digital infrastructure, establishing the country as a digital leader. The financing had to serve a wide range of purposes, including a competitive M&A process, a public-to-private buyout that involved a squeeze-out process and required an opco/holdco structure, as well as transformative asset disposals and rapid debt repayment. Both TLB tranches were priced at 350bp over Libor with a 0% Libor floor and a 99.5 OID and traded well on the break. The euro TLB raised more than €3bn and was increased to a European record of €2.7bn. The dollar tranche was allocated at €1.2bn-equivalent and more than 120 investors joined both tranches. “€2.7bn as a single placement in Europe was super and it’s a reference point,” said Charlotte Conlan, EMEA head of high-yield bond and loan syndicate at BNP Paribas. Selling Maquarie’s vision of the open network concept was the biggest hurdle, along with getting investors comfortable with the transition to a pure Danish infrastructure business via asset sales. The US$2.6bn sale in mid-July of TDC’s Norwegian business allowed it to repay US$2.3bn of term loans, including all of the dollar debt, leaving an all-euro capital structure. Barclays and BNP Paribas were global coordinators, while Deutsche Bank, HSBC, Macquarie and Nordea were physical bookrunners and mandated lead arrangers. To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.

IFR’s mid-market loan of the year raised a lot of eyebrows, and not just because of the name. While the name might make some blush, there was nothing blush-worthy about the execution of the US$250m term loan backing private equity firm Lindsay Goldberg’s buyout of fan maker Big Ass Solutions. The transaction was notable in that not only was it a US$250m covenant-lite term loan for a fan maker with less than US$50m of Ebitda, but it also had an order book of 61 accounts, providing ample liquidity for a middle-market deal. “It was four to five times oversubscribed,” said Jeff Cohen, global head of leveraged finance capital markets at Credit Suisse. “It really shows what services we can deliver to a middle-market sponsor. They would never have come anywhere close to this execution doing a clubbed-up deal or doing a unitranche with direct lenders.” The five-year term loan was launched in October 2017 and closed on November 21 2017. Pricing opened in the 475bp–500bp over Libor range, but strong demand built for the book as Credit Suisse went out to its roster of investors, allowing the issuer to drop pricing on the loan to 425bp. In the end, the book had a total of just over US$1bn in commitments. The deal also included a US$40m revolving credit facility and a US$30m subordinated sellers note. Not only that, the loan traded well enough that Big Ass Solutions was able to return to the market in June 2018 and cut pricing further to 375bp over Libor. The repriced loan continues to remain above par. Credit Suisse has really carved out a niche for itself in serving middle-market sponsors. The volume that it does has assisted the bank with bigger deals, the bankers said, giving the company a feel for the market that other banks not as active may not have. “We might not make as much of a fee because it’s a smaller deal,” Cohen said. “But it just allows us to have more information, more flow with our investors, more knowledge about where the market is, where investors care and how to keep pressure points on successful syndication. We like doing these middle-market transactions.” Big Ass manufactures fans, lights and controls for industrial, agricultural, commercial and residential use. The company’s headquarters are in Lexington, Kentucky, with additional offices in Australia, Malaysia, Singapore, and Canada. To see the digital version of IFR Awards 2018, please click here. To purchase printed copies or a PDF of IFR Awards 2018, please email gloria.balbastro@refinitiv.com.