Blackstone selling two jumbo loans for F&R buyout: Reuters

Selldown of the jumbo $13.5 billion financing backing Blackstone Group’s (BX.N) $20 billion acquisition of a 55 percent stake in Thomson Reuters’(TRI.TO) Financial and Risk unit is under way, banking sources said on Friday.

A $8 billion-equivalent Term Loan B is being shown to large institutional investors before an expected September launch, and a $5.5 billion bridge loan to high-yield bond issues has also been launched.

The deal is still awaiting regulatory clearance, and is expected to close between early August and early October, a person familiar with the situation said.

The $13.5 billion financing is being led by JP Morgan, Bank of America Merrill Lynch and Citigroup. BAML is leading the loan and JP Morgan is leading the bonds.

The deal is the largest buyout financing since the financial crisis, and its launch has been eagerly awaited since the deal was underwritten in January.

The Term Loan B is being pre-marketed and is expected to formally launch soon after Labor Day, which will be celebrated on September 3 in the US.

“It’s a huge deal, they [banks] are trying to gauge interest,” a source close to the transaction said.

The high-yield bonds are expected to launch between early August and early September, and will not be funded into an escrow account.

The loans are more flexible and are being launched now as investors will earn a commitment fee on the bridge loan and a ticking fee on the Term Loan B before the deal closes, the person familiar with the situation said.

Blackstone announced on January 30 that it was buying a 55 percent majority stake in Thomson Reuters’ F&R unit, which includes LPC and IFR, after working on the deal for five years.

The private equity firm was able to command favorable financing terms when the deal was underwritten in January, but the leveraged finance market has softened in the past six months, which makes placing a jumbo buyout financing more challenging.

“It was underwritten in a different time, but I think this is no worry in terms of getting it done, it’s a timing issue. It’s comfortable risk,” a person familiar with the situation said.

The TLB includes step-ups in market flex terms and the bond has debt caps, which are designed to give banks additional protection as investor opposition to aggressively priced and structured deals grows.

“They have got some accounts to look at it already, trying to get some feedback on the structure,” a loan trader said.

The huge Term Loan B will also have to compete with other large US buyout financings that are expected to launch after Labor Day, including the $9.9 billion buyout of Envision Healthcare (EVHC.N).

“In our opinion, this is a best in class LBO. There is no better sponsor than Blackstone and the business is as good as it gets,” the person said.

Blackstone declined to comment. JP Morgan and BAML declined to comment. Citigroup did not immediately return a request for comment.

The Term Loan B is split between $5.5 billion and $2.5 billion-equivalent in euros. The company will also place a $750 million revolving credit facility.

The financing also includes $3 billion-equivalent of secured bonds, split between $2 billion and $1 billion-equivalent in euros, and $2.5 billion-equivalent of unsecured bonds, split between $1.8 billion and $700 million-equivalent in euros.

Wells Fargo, Morgan Stanley, Goldman Sachs, UBS, Credit Suisse, HSBC, Deutsche Bank, Barclays, Royal Bank of Canada and SMBC have joined the deal as joint lead arrangers.

Other banks that are expected to join the deal include MUFG, Mizuho, Societe Generale, Standard Chartered, Natixis, BMO, Toronto-Dominion, UniCredit, Intesa Sanpaolo, ING and Jefferies.

The $5.5 billion bridge loan comprises a $3 billion 7.5-year senior secured loan, split between $2 billion and$1 billion-equivalent in euros, and an eight-year $2.5 billion unsecured loan, split between $1.8 billion and $700 million-equivalent in euros.

The structure mirrors the expected sizes of the bond tranches. The senior secured tranche pays a margin of 400bp and the unsecured tranche has a margin of 625bp.

A 50bp commitment fee is included for tickets of at least $150 million on the secured tranche and 25bp for all other ticket sizes. The unsecured tranche has a 75bp commitment fee for tickets of at least $50 million and 50bp for all other commitments.

Commitments are due on July 9.

Additional funding for the acquisition comes from $1 billion in preferred equity – with a 14.5 percent payment-in-kind coupon – $3 billion of cash equity that Blackstone is contributing, and $2.5 billion of existing equity, based on the $20 billion valuation, that will be rolled over.

Leverage is expected to be around 4.5 times through the secured debt and 5.6 times total debt after Ebitda adjustments, which could be as much as 30 percent, as the transaction is a carve-out and involves reallocating costs.

The size of the debt and leverage imply Ebitda of about $2.4 billion, including around $650 million of cost savings, based on the last 12 months’ Ebitda of about $1.7 billion for the F&R unit.