RLPC: Freeport launches as bankers shrug off risk

NEW YORK Fri Dec 14, 2012 9:36am EST

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NEW YORK Dec 14 (Reuters) - Banks forged ahead this week with syndication of a $12.5 billion loan package that will back Freeport-McMoran Inc's acquisition of Plains Exploration & Production Co and McMoran Exploration Co despite growing stock holder concerns about the tie-up, sources told Thomson Reuters LPC.

The metal and mining giant reached out to top relationship banks to syndicate the financing that includes a $4 billion term loan and a $5.5 billion bridge to bonds. The company is additionally looking to refinance and upsize an existing $1.5 billion, five-year revolver to $3 billion.

The new loans pay LIB+150 if drawn for ratings of BBB/Baa2, sources said.

A week after its announcement, the acquisition is already stirring concerns among existing equity owners. For one, the acquisition deal was structured so that Freeport was able to avoid a shareholder vote. Another sticking point is the six executives and directors shared by both Freeport and McMoran. It is also a concern that the acquirer is a metals miner moving into the oil and gas business for the first time. As a result, the acquisition carries a more elevated transaction risk, bankers said.

But bankers are mostly shrugging off the transaction risk due to the company's strong risk profile. Freeport's net debt to Ebitda is currently -0.03 times and will move up to only 1.9 times under the terms of the transaction, a banker said. This ratio is significantly low relative to that of peers in the Baa rating category that ranges between 2.5 times and 3.1 times, according to Moody's Investors Service.

"It's almost as if they were acquiring the companies with existing liquidity," said a banker following the transaction.

JP Morgan is leading the deal that will likely be syndicated to additional banks during a retail round to take place in the next two weeks. The term loan is expected to fund in the first or second week of January.

Bankers anticipate the bridge loan will remain undrawn as Freeport will potentially tap the bond market in the first quarter of 2013. However, access to the committed financing was necessary to ink a deal with PXP and MacMoran.

Freeport is buying PXP for $6.9 billion in cash and stock. It is buying McMoRan for $2.1 billion in cash. The acquisition is expected to close in the second quarter of 2013. The company estimated that total debt would be $20 billion following the acquisition, with debt to Ebitda in 2013 predicted to be 1.7 times.

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