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LONDON, March 30 (Reuters) - A highly anticipated US$5.5bn–equivalent leveraged loan backing UK software company Micro Focus International’s acquisition of Hewlett Packard Enterprises’(HPE) software business is set to launch to syndication on Friday, banking sources said.
JP Morgan is leading the corporate leveraged loan, joined by Barclays, HSBC and RBS on the dual-currency financing, which is one of the largest leveraged loans to launch this year.
The financing will be offering a bout of new paper to the market, something craved by cash-rich investors eager to put new money to work, fed up with a surge of repricings and refinancings of existing deals that have so far dominated both the US and European leveraged loan markets of late.
Banks are also likely to be attracted to the deal, as leveraged finance becomes an increasingly attractive place for them to invest, as one of the few profitable practices left amid a low yield environment.
“The new paper will be easily absorbed by investors. Banks will also be all over it as they have money to put to work. Banks will also be hoping to guarantee a spot on the next mandate, be it an IPO or sale,” a leveraged finance investor said.
The US$5bn term loan is expected to be all-senior and will include around €1bn for European investors, as well as a US$500m revolving credit facility, which Bank of America Merrill Lynch has joined, banking sources said previously.
Leverage will total around 3.3 times Ebitda and the company has a two-year goal to reduce that to 2.5 times.
Micro Focus was not immediately available to comment.
The US$8.8bn merger, which was announced in September, is structured as a reverse takeover and is expected to close in the third quarter of 2017. The deal will be funded through the issuance of Micro Focus shares representing 50.1% of the combined group to HPE and a pre-completion cash payment of US$2.5bn from HPE Software to HPE.
The loan will support the pre-completion cash payment by HPE Software, finance a US$400m cash distribution to current Micro Focus' shareholders, pay fees and royalties as well as refinance Micro Focus’ outstanding debt of around US$1.6bn.
Headquartered in Newbury, Micro Focus had a market capitalisation of £4.45bn before the deal. It has been snapping up software companies but this is its largest deal to date. Last year it acquired US firm Serena Software for US$540m.
Editing by Christopher Mangham