NEW YORK, Sept 6 (Reuters) - United Technologies Corp launched a US$6.5bn loan on Wednesday to support the aerospace and industrial company’s US$23bn purchase of avionics supplier Rockwell Collins Inc, the largest merger ever in the aerospace sector, sources said.
The financing is a 364-day bridge term loan that will ultimately be replaced by permanent bond debt, the sources said.
It is the first loan backing merger and acquisition activity in the investment-grade aerospace arena so far this year, according to Thomson Reuters LPC.
Morgan Stanley is administrative agent. The bank, along with HSBC Securities and Bank of America Merrill Lynch, are joint lead arrangers and bookrunners.
Loan pricing details were not immediately available.
The company on Tuesday said it expects to raise about US$14bn of new debt, as well as bring back US$1bn of foreign cash, to fund the cash portion of the deal.
The acquisition, announced on Monday, is valued at US$30bn when including the US$7bn of Rockwell debt that United Technologies will be assuming.
The merger is expected to close by the third quarter of next year.
M&A has come in a “micro-burst of activity” over the past few weeks, and likely will remain episodic through the rest of the year, one senior banker said of a wave of mergers between high-quality companies announced late in the summer.
Other recent large tie-ups include Gilead Sciences Inc’s agreement to buy Kite Pharma Inc for about US$12bn, and Sempra Energy’s US$9.45bn acquisition of Texas electricity transmission and distribution grid operator Oncor Electric Delivery Co.
Companies are “actively having discussions” about new M&A opportunities, another senior banker said. “People are giving up on Washington, and moving forward” in the absence of any resolution about US tax reform, the banker said.
United Technologies plans to fund the US$23bn purchase amount with two-thirds cash and one-third stock, according to a transcript of a conference call with analysts on Tuesday.
The company’s senior unsecured debt is rated A3 by Moody’s Investors Service and A- by S&P, both investment-grade rankings.
Each of the agencies said they might cut the company’s credit rating by a notch, depending on the pace of deleveraging. Such a ratings reduction would maintain investment-grade credit quality.
United Technologies said on Tuesday that it expects to suspend share buybacks, limit M&A and explore opportunities to repatriate cash and divest non-core assets, toward the effort to keep its investment-grade ratings.
Rockwell Collins and United Technologies’ aerospace systems segment will be combined to create a new business unit named Collins Aerospace Systems, the companies said in announcing the acquisition. (Reporting by Lynn Adler; Editing By Michelle Sierra and Leela Parker Deo)