LONDON, July 29 (LPC) - Banks are pitching to lead a possible debt financing backing a potential US$27bn merger between financial data firm Refinitiv and the London Stock Exchange Group (LSE), banking sources said on Monday.
The LSE confirmed on Saturday it is in advanced talks to purchase Refinitiv, only nine months after US private equity firm Blackstone closed its purchase of a majority stake which valued the company at US$20bn.
The potential deal will be funded by newly issued LSE shares. Refinitiv shareholders would hold a stake of about 37% in the combined entity, but own less than 30% of total voting rights.
Some of Refinitiv’s existing leveraged buyout debt could be refinanced with investment-grade acquisition debt, sources said. Share issues are typically supported by pre-IPO loan facilities.
Goldman Sachs, Morgan Stanley and Robey Warshaw are working with the LSE, according to Reuters.
A formal announcement of the sale could come on August 1 when the LSE publishes half-year results, Reuters reported. Both LSE and Refinitv declined to comment outside of the statement on financing matters.
Refinitiv, the parent company of LPC, was created last year when a Blackstone-led consortium bought a 55% stake in Thomson Reuters’ Financial and Risk business in the largest leveraged buyout since the financial crisis. Thomson Reuters owns the remaining 45% stake.
Refinitiv’s buyout was financed by a US$13.5bn loan and bond package. Then loans were split between a US$6.5bn facility and a US$2.75bn-equivalent euro-denominated facility.
There were two dollar bonds totalling US$2.825bn and two euro bonds totalling €1.225bn.
The debt financing also included US$1bn of preferred equity, which has a 14.5% PIK coupon, plus a US$750m revolving credit facility.
In addition to potentially refinancing with investment-grade LSE debt, Refinitiv’s new owners could also choose to repay some of the debt, or leave it in place, the banking sources said.
As advisers, Goldman Sachs and Morgan Stanley are expected to take a leading role on any new debt financing, the sources said, adding that other banks have begun pitching to provide financing, as a potential deal is now in the public domain.
“Whilst any potential merger was quiet they would have spoken to a limited number of banks to limit leakage risk. Now it is public there is no restriction on how many parties get involved so they will run a more competitive process. More banks will be approaching to finance this,” a syndicate head said.
Until a formal offer is received, bankers and investors are speculating what the company’s new capital structure could look like, beyond the move from a leveraged to investment-grade credit profile to reflect LSE’s higher credit rating.
“(The) LSE doesn’t have any exit pressure, they might not want leveraged debt. They could use cheaper financing options to fund the deal, such as equity,” said a debt investor who invested in Refinitiv leveraged loan.
“They (LSE) could also raise funds by using its own credit to pay down part or all leveraged debt,” he added.
Any new debt package is expected to refinance existing leveraged loans with investment-grade debt. Existing high yield bonds could remain in place until expensive non-call provisions expire, or be removed from the structure to allow the newly merged entity to secure cheaper debt.
“The expectation is that they’ll refinance out of the loans but keep the bonds in place until they are callable. Regarding the bonds, they’ll keep paying for single B credit even though it is much better risk as it will be a high-grade structure,” a senior banker said.
A second investor countered: “No one has put the pieces together properly yet and we will need to check the bond docs as bankers could find a way to get the bonds out of the structure.”
The dollar loan that backed the Refinitiv buyout priced at 375bp over Libor with no floor, while the euro loan priced at 400bp over Euribor with a 0% floor. Both loans had a 25bp step-down at 3.75 times net first-lien leverage.
Both tranches sold with an OID of 99.75 when they allocated in September 2018.
Bank of America Merrill Lynch, JP Morgan, Citigroup, Wells Fargo, Morgan Stanley, Goldman Sachs, UBS, Credit Suisse, HSBC, Deutsche Bank, Barclays, Royal Bank of Canada and Sumitomo were lenders. BAML was left lead on both the euro and dollar term loans.
Loan investors are not happy at the prospect of being refinanced out of their investment so soon after the loans priced, as the large complex deal required a lot of work prior to commitments in late 2018.
The secondary price of Refinitiv’s euro-denominated loan climbed over face value, or par on July 22 at 100.4 and was 100.15 on July 26.
The loans were quoted at 100.81 on September 19, and hit a low of 97.44 on January 3 after December’s volatility in global markets.
The large size of Refinitiv’s loan has made it a liquid benchmark for the secondary market, and its loss will be felt as investors struggle to redeploy that capital quickly, the sources said.
“Loan holders will be annoyed if they lose a large loan in the market that they like the credit risk of. The fact it was trading near par means there is no great gain either,” the second investor said. (Additional reporting by Prudence Ho; Editing by Christopher Mangham)