February 16, 2018 / 5:28 PM / 6 months ago

Broadcom’s US$100bn loan takes loans to next level

NEW YORK, Feb 16 (LPC) - Broadcom’s US$100m loan package backing its proposed US$121bn acquisition of Qualcomm, is set to become the biggest-ever syndicated loan globally if the hostile deal goes ahead.

US bankers are eagerly anticipating the mega financing, which breaches psychological barriers as the loan market moves to the next level, as well as potentially setting more records as the biggest single acquisition financing ever.

Twelve banks are providing the financing, which is on track to beat the prior record of US$75bn issued by Brazilian/Belgian brewer AB Inbev to finance its purchase of rival SAB Miller in 2015, according to Thomson Reuters LPC data.

Bank of America Merrill Lynch, Citigroup, Deutsche Bank, JP Morgan, Mizuho, MUFG, SMBC, Wells Fargo, Scotiabank, BMO Capital Markets, RBC Capital Markets and Morgan Stanley are providing the loans.

Qualcomm said on Friday it is open to discussing the buyout offer from Broadcom that "reflects the true value" of the chipmaker and better addresses its concerns about potential regulatory hurdles to a deal.

Given the hurdles and approvals required by the massive deal, bankers expect an 18-24 month timeframe before the deal closes if the acquisition succeeds, but the 12 lead banks are already talking to 8-10 banks in a bid to to derisk quickly, banking sources said.

The loan market is as stable and liquid as it has ever been, but holding US$100bn is not for the faint hearted as intense global equity and bond market volatility highlighted in early February.

“We’re salivating,” said a banker expecting to be invited into the deal.

DELECTABLE LOANS

Activity in the U.S. investment grade loan market has been muted so far due to uncertainty over tax reform which could further reduce volume, and there is little doubt that liquid banks will jump at the chance to lend to the mammoth deal.

“There is a lot of appetite in the market at a certain price for a certain credit and quality and this deal fits that bill,” a second banker said.

The deal has been priced and structured to show banks that the company will get to the capital markets quickly to reduce the deal.

The senior unsecured loan includes a US$20bn, one-year cash flow bridge facility; a US$4.477bn, two-year term loan; a US$19.679bn, three-year term loan; a US$19.679bn, five-year term loan; and a US$5bn, five-year revolving credit facility.

Initial margins are 100bp over Libor on the cash flow bridge, 112.5bp on the two-year term loan, 125bp on the three-year term loan and revolver, and 137.5bp on the five-year term loan. The revolver pays an initial commitment fee of 12.5bp.

Margins subsequently ratchet on a ratings based grid. The company has substantial free cashflow and a strong track record of rapid deleveraging on its previous acquisitions.

“It’s a great transaction, it’s a compelling combination and the deal makes sense. I think it’s going to go very well if the deal gets done,” a syndicate head said.

General syndication of the deal is not expected to launch before the shareholder vote on March 6.

In the U.S investment grade market, the previous record for a new money loan was Verizon Communications’ US$61bn loan for its acquisition of Vodafone Group in 2013. CVS's US$49bn loan for its purchase of insurer Aetna this past December was previously the second highest. (Reporting by Michelle Sierra; Editing by Tessa Walsh)

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