What is a Bridge LoanWhat's a bridge loan?
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As rumors of a $100 billion to $130 billion deal that would support the purchase of the outstanding 45% of Verizon Communications' shares that it did not hold in Verizon Wireless from the Vodafone group emerged, the question was whether such a deal would be possible. Then on 2 September 2013, the conversation became a real thing that the markets will long recall.
"It really is one time in a row, one time in a lifetime," said Anish Shah, Morgan Stanley's GM loan director. JPMorgan, Morgan Stanley, Bank of America Merrill Lynch and Barclays were jointly acting as Arranger and Bookrunner in the record-breaking book. This 364-day credit line was drawn in equal parts by the four participating financial institutions and comprised a $12 billion bridge for credit and a $49 billion bridge for debt.
Morgan Morgan and Morgan Stanley were overall coordinators, while JP Morgan was the management agents. Not only has the jumpo-loan supported the biggest ever acquisitions, it is also the biggest ever commitment in terms of funding and the biggest ever bridging loan. It was important to find an amount that included not only what the business needed, but also what was available on the open markets, when arranging the funding on a specific fund-base.
In view of the USD 15.25 billion pledged by each of the underwriters, which is significantly greater than most M&A transactions, a rapid take-out in the fixed-income markets was of utmost importance. Those were commitments that were probably greater than most deals," said Peter Hall, BofA Merrill's GM Credit Line Manager. The USD 12 billion long-term loan was syndicated in the same weeks, opening the door to banks' high demand for backed asset.
In the following weeks, Verizon substituted USD 49 billion in fixed income for the bridge-to-bond part.
IPC: LPC: Creditors want to accept a Broadcom Bridge Loan Rekord
November 10, NEW YORK (Reuters) - Banking is anxious to open its wallet for perhaps the largest ever revolving credit facility for an investment-grade buy when chip maker Broadcom's $103 billion bids to buy Qualcomm are approved. As credit in support of high value merger and takeover activity fell 18% this year compared to the same 10-month period last year, market participants said they hoped this transaction would materialise and create the conditions for more deals to flow.
Broadcom was quoted by five banking institutions - Bank of America Merrill Lynch, Citigroup, Deutsche Bank, JP Morgan and Morgan Stanley - as saying that they were "very confident" that they would be able to provide the $130 billion worth of funding, plus debts, required for a buyout. S&P rates Broadcom BBB- and Moody's Baa2. These tactics, often used in large enemy buyouts, allow the borrower to evade charges for money tied up by the bank for a large transaction that may not be taking place.
They do not immediately bind their accounts and signal to the market that the transaction will be financed if the transaction is cleared. "We talked about when the first $100 billion dollar deal would come for a while," one bankier said, saying that there is enough interest to raise funds of this magnitude.
Concrete financial schedules for the transaction are not yet clear. Freeman Consulting Services says that with an early bridge loan of around USD 100 billion, the advance payments to the organising bank would be at least USD 100 million - and possibly much more. Later, if about USD 100 billion in investment-grade debt were spent, bank earnings would be an extra USD 400 to 600 million in insurance commission.
When asked about the risk of writing an insurance contract for a bridge over a river bank at a juncture of possible change in geopolitics, the director of one of the participating banks' investments bank said: It would be a different storyline if it was a single B valued transaction, but we are hopeful to build a bridge for such a transaction at the present one.
" Bridging finance is expected to surpass the $75 billion loan that supported the acquisition of SABMiller by the Belgian AB InBev brewery in 2015. The $61 billion bridge loan from Verizon Communications in 2013 to purchase the Verizon Wireless interest that Vodafone does not yet own is the second biggest such business in the world and the single largest U.S. bridge loan.
Bayer, the leading pharmaceutical and chemicals group in Germany, has supported its acquisition of the U.S. seeds business Monsanto with a USD 57 billion bridge loan, the third largest loan. Together with debt, the long-term funding is likely to involve short-term borrowings with different maturity dates, which will help credit ratings firms secure the combined company's debt reduction plan, the bankier said.
Reuters explained to Broadcom that it would not exclude a proxy battle to drive this fusion, which is redesigning the sector at the heart of cellular handset hardware. Reuters also stated that it would not exclude the possibility of a proxies battle to drive this fusion. As well as the very confidential correspondence from the first banking group, Silver Lake Partners undertook to make US$5 billion in bonds available to Broadcom.
While a number of fusions are being delayed and the debate on US fiscal policies is escalating, Broadcom is moving into focus.