The financing backing US private equity firm Blackstone Group’s (BX.N) acquisition of a majority stake in Thomson Reuters’ Financial and Risk (F&R) unit (TRI.TO) totals more than $15 billion, banking sources said on Friday.
The deal, which consists of a $14 billion loan and bond financing, also includes a $1 billion Payment In Kind (PIK) note at the holding company level, two sources said.
The $14 billion financing is currently being marketed to other banks by the three lead banks Bank of America Merrill Lynch, Citigroup and JP Morgan.
The $1 billion PIK note has already been placed, the sources said. PIK notes are used to increase the amount of debt in buyouts by giving issuers the right to pay interest in the form of additional debt.
The three lead banks are talking to banks, including Barclays, Deutsche Bank, Goldman Sachs, HSBC and RBC, which are being offered fees to underwrite 28% of the loan/bond transaction and derisk the arranging banks, sources said.
The top group of banks is expected to be in place shortly, and the three lead banks may choose to reduce their underwriting share further as banks are keen to lend to the deal as customers of Thomson Reuters, they added.
“By the end of the week the lineup will be going through the credit process,” a syndicate head said.
Once the bank group is complete, the three lead banks are not expected to launch the deal in a wider syndication to institutional investors until the end of June at the earliest, a banker close to the deal said.
The lead banks are working through complex due diligence, and are currently discussing whether to launch the institutional syndication before or after the summer, the banker said.
This could leave the lead bank group on risk for several months after a volatile start to the year that saw global stock markets plunge in early February on fears of inflationary pressures and interest rate rises.
Banks and investors are, however, confident that the financing will be well received as cash-rich funds are eager to put fresh capital to work in size, the sources said.
“I think it’s a great business, it’s a good solid subscription model with sticky customers and high cash conversion, which is what you need for good LBOs,” a syndicate head said.
Another period of prolonged market volatility could encourage investors to push for more compensation to reflect increased market risk, the senior investor said.
The $14 billion loan and bond financing is expected to be structured with 60% loans and 40% bonds.
This could give an $8 billion-equivalent loan financing, including a revolving credit of $500 million-$1 billion, and a potential split of $3 billion-equivalent secured bonds and $3 billion-equivalent of unsecured bonds, the sources said.
The debt will be mainly denominated in dollars. A $1 billion financing could give headline leverage of 8.8 times, based on last 12 months Ebitda of approximately $1.7 billion for the F&R unit. This includes the PIK note, the syndicate head said.
Senior leverage of roughly 4.5-5.0 times could give and junior debt of US$4bn-$5bn in addition to a loan of around US$8bn, sources said.
The loan and bond financing that is sold to the market is expected to have leverage of 6-6.5 times, the syndicate head said. Another source familiar with the matter said previously that leverage was expected to be below 6.0 times.
Blackstone is buying a 55% stake in Thomson Reuters F&R unit, which includes LPC and IFR. Reuters will retain a 45% holding.