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preparatory work. While Saudi
Arabia’s credit rating of A1/A-
(Moody’s and S&P) is not a
concern, some banks may have
to temporarily increase their
country limits.
“The credit is easy; the
quantum less easy. It will all be
about country limits. Although
Saudi Arabia is highly rated
country, limits are not
unlimited,” the banker said.
“It’s a unique transaction and
we can increase country limits
just for this transaction - a lot of
banks will need to do this.”PIF CLOSES IN
PIF is set to sign its first
commercial loan in the coming
days. The five-year loan isstructured as a club loan with
14-16 banks. It has been largely
self-arranged by PIF, which held
bilateral negotiations with each
lender.
“We were summoned to
Saudi around four weeks ago for
one-to-one meetings – it is
exciting for banks”, a second
banker said.
Banks joining the deal will not
know which other banks are in
the group until they receive the
final loan documentation to sign.
The loan is seen as an
essential relationship-building
exercise to win further business
with the Saudi government,
which says it has started to
reduce its economic reliance on
hydrocarbons.“It’s the first deal for the
sovereign wealth fund and it
cements our relationship with the
Kingdom,” the second banker said.
PIF received commitments of
up to US$20bn from banks
eager to lend to net lucrative
ancillary business and finally
settled on US$11bn after scaling
back banks’ commitments.
The loan pays a margin of
75bp over Libor, with additional
fees of around 60bp-70bp for the
lead banks.
The banks lending to PIF are
expected to be similar to lenders
to a US$16bn loan for the
Kingdom of Saudi Arabia that
signed in March.
“The understanding is that
the bank group and size [for PIF]will be very similar to the
Kingdom’s US$16bn loan - this
is a government relationship-
driven deal,” a third banker said.
HSBC, JP Morgan and MUFG
were coordinators on Saudi’s
deal, with Bank of China,
Citigroup, Credit Agricole, ICBC,
Mizuho, Standard Chartered
and SMBC as bookrunners.
BNP Paribas, Goldman Sachs,
Societe Generale joined as
mandated lead arrangers and
Bank of America Merrill Lynch,
Deutsche Bank and Morgan
Stanley acted as lead arrangers.
Top tickets for the Saudi loan
were US$1.425bn, whereas for
PIF they will be around US$1bn.
Additional reporting by SudipRoy (^) n
Tuesday’s bank meeting to pitch
the loans that some US$250m of
the cost cutting will be made in
the three months after the
acquisition closes, primarily
through technology savings.
“Blackstone made a fair point
that this deal has been in
gestation for a long time and so
they know almost down to the
individual headcount what
they’re going to do,” the
portfolio manager said. “They
said the bulk of cuts are going to
be at the senior management
level and not for example on the
sales team.”
A lawyer specialising in
leveraged finance in London
said that sponsors have had a lot
of third-party diligence done on
projected cost savings to help
boost their credibility, but
added that investor resistance to
adjustments was now a key
battleground.
Brand said that Blackstone is
the biggest fee payer on Wall
Street, paying over US$1bn a
year to investment banks, and is
also the largest provider of
capital to the hedge fund
industry, which will help
Refinitiv to gain further traction
with financial institutions and
grow the business.
David Craig, president of F&R
and future CEO of Refinitiv, said
at the loans meeting that much
of the hard work was behind the
company, as previous price
reductions had now been
absorbed and its restructuring
was complete.
Refinitiv currently spends up
to US$500m a year on capital
expenditure, a number that
Refinitiv executives said is
expected to fall after the
acquisition, helping to boost
free cashflow.
“It is sometimes strange with
these very large transactions as
investors almost make the
decision at the beginning that
they’re going to do it,” the
portfolio manager added. “Often
when you drill down into the
business though you realise it’s
actually not an easy story.”
Analysts at Covenant Review,
a credit research firm, were
unimpressed with the high-yield
bonds’ investor protections. “The
notes are being marketed with
extremely defective sponsor-
style covenants riddled with
flaws and loopholes that reflect
the worst excesses of covenant
erosion over the last two years,”
research from the firm said (See
Bonds section for more details).
LENGTHY UNDERWRITE
The deal was underwritten in
January, when markets were
more aggressive and pricing was
notably tighter.
For instance, a €2bn Term
Loan B backing KKR’s carve-out
of Upfield Foods’ (formerly
known as Flora Food Group)
priced in February at 350bp over
Euribor. “KKR said recently that
they felt they got lucky with the
timing of that deal,” said
another lawyer specialising in
leveraged finance in London.
“I’ve not seen an underwrite
hold as long as Refinitiv, so it’ll
be interesting.”
A banker on the deal in New
York said banks are now
underwriting at yields of 8%–9%
with caps of 11%, but when
these deals were done caps were
more like 9%.
A person familiar with the
deal said the underwrite
contains a step up in pricing
over time, however, providing
banks with some cushion
relative to where the market
was in January.
The fact that other jumbo deals
in euros this year have traded well
- with both TDC’s €2.7bn Term
Loan B and Techem’s €2.34bn
Term Loan B quoted above par last
week – provides some comfort.
Corporate family ratings are
B3/B/BB, while secured ratings
are B2/B/BB+. Unsecured ratings
are Caaa2/B-/B+.
“One of the things you always
watch for late in the cycle is an
expansion in the size of
issuance in the Triple C market,”
said Brian Kennedy, co-portfolio
manager of multisector
institutional strategies and
mutual funds at Loomis Sayles.
“That’s something we watch
Source: LPC closely”. (^) n
350
300
250
200
150
100
50
0
100
90
80
70
60
50
40
30
20
10
0
1Q021Q031Q041Q051Q061Q071Q081Q091Q101Q111Q121Q131Q141Q151Q161Q171Q
Refinancing New money % of new money
US institutional issuance (US$bn)
Share of new money (%)
NEW MONEY LOANS DRIVE 3Q18 US INSTITUTIONAL LOAN VOLUME
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