June 11, 2020 / 3:15 PM / a month ago

Banks pile into Liberty-Telefonica loan

LONDON, June 11 (LPC) - Over 30 banks have piled into a £4bn loan to back a US$38bn merger of the British businesses of Liberty Global and Telefonica after the borrowers tapped their large banking relationships to secure the deal within a ten-day period.

JP Morgan and Citigroup underwrote the £4bn 2.5-year term loan in May to back the merger of Liberty’s Virgin Media with Telefonica’s O2. Syndication of the loan was launched shortly afterwards and closed at the end of May when an additional 30 banks were bought into the deal.

Some 36 banks were initially approached, with 32 able to commit to the loan, which pays a margin of 150bp over Libor with a 40bp upfront fee, within the tight ten-day deadline.

The banks were initially asked to commit to at least £250m, but were then scaled back by 50% to £125m.

“That is a pretty big scale back. It is not unprecedented in investment-grade lending but it is not typical either. It is an indication of the strength of Liberty and Telefonica as corporate borrowers,” a senior banker said.

The 32 banks are Citi, JP Morgan, ABN Amro, BBVA, Banca Sabadell, Bank of America, Bankia, Bankinter, Barclays, BNP Paribas, CaixaBank, Commerzbank, Credit Agricole CIB, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, ING, Intesa Sanpaolo, Lloyds, Mediobanca, Mizuho, Morgan Stanley, MUFG, Natwest, Natixis, RBC, Santander, Societe Generale, SMBC, Scotiabank and UniCredit.

Liberty and Telefonica were not immediately available to comment on the financing details.

The large bank group reflects the vast amount of relationships both entities have. However, a number of lenders would have preferred fewer banks and a larger ticket to get paid bigger fees.

“This is just Europe for you, there are too many banks. In this deal there are the regional Spanish banks, the pan-European banks and the US banks. It is a good quality asset and a pretty straightforward deal so banks piled in,” a second senior banker said.

LEVERAGE UP

The loan will be used to initially de-risk the transaction. It is then expected to be refinanced next year and increased to in excess of £6bn through a combination of multi-currency leveraged loans and high-yield bonds, sitting across both balance sheets. Leverage at that point will stand at between four and five times.

“Liberty and Telefonica is going to be one of the most active issuers on the street and so while this is an i-grade transaction for now, Liberty will be doing more deals and significant debt issuance and as a result makes it one of the most attractive borrowers in the market,” the first senior banker said.

The take out next year is expected to draw significant attention from leveraged loan and high-yield bond investors, attracted by its size and the fact that the TMT sector has been strong and performed well, despite Covid-19.

The combined company will have the largest non-investment-grade balance sheet in Europe, bankers said.

The parent companies, which expect to achieve £6.2bn of synergies on an annual basis by the fifth full year after closing, will have equal ownership of the combined entity. (Editing by Christopher Mangham)

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