LONDON, March 10 (Reuters) - The tightly-contested battle for French telecoms operator SFR between Numericable and Bouygues is a win-win situation for lenders as both bids are backed by loans of more than 10 billion euros ($13.86 billion).
The loans are however very different. Numericable's financing is a leveraged loan, which is targeted at institutional fund investors and pays higher interest margins as it is viewed as a more risky credit.
Bouygues' loan is a corporate-style investment-grade loan that pays lower interest margins due to the reduced risk associated with a higher credit rating.
Market conditions are equally strong for both sets of financings. Europe's liquid loan markets have been waiting for new event-driven M&A deals after low levels of activity in 2013.
"No matter what the deal looks like, it will be a very big financing and will be one of the most interesting situations in Europe's loan markets this year for sure," a leveraged finance banker said.
Europe's banks are eager to lend again and underwrite new deals after strengthening their capital postions and cash-rich investors want to put funds to work.
"There is huge appetite for large M&A financing from banks and investors," a leveraged finance investor said.
Numericable's bid last week valued SFR at 14.75 billion euros, which will leave owner Vivendi with a roughly 32 percent stake in the new group.
Bouygues, currently France's third-biggest telecoms operator, offered Vivendi 10.5 billion euros in cash and 46 percent of the new company after a planned spin-off. The bid values SFR at 14.5 billion euros before synergies and 19 billion euros after synergies.
As Bouygues' acquisition will merge SFR into Bouygues and then carve out the combined telecoms company into a listed company, a capital increase is planned at the time of the Initial Public Offering (IPO) to increase investment capacity.
Numericable's bid for SFR is backed with a leveraged loan of 10-12 billion euros which is provided by Bank of America Merrill Lynch, Barclays, BNP Paribas, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley.
The deal is expected to consist of loans and bonds in euros and dollars to tap institutional liquidity in Europe and the US.
Up to 4 billion euros of debt could be raised from European investors and banks to fund the acquisition, with the remainder raised in the US, one investor said.
"They (banks) need to maximise capacity for a deal like this so it needs to be well-structured and priced to keep investors interested," a leveraged finance banker said.
Bouygues' bid is backed by a 10.5 billion euro corporate loan. The deal was underwritten on a sole basis by HSBC and signed on the day of the bid deadline on March 5 as Bouygues wanted to keep a low profile before launching its bid, a senior banker said.
The investment-grade loan will finance the cash part of the acquisition and provide working capital for Bouygues' operating needs. HSBC is also acting as M&A adviser to Bouygues along with Rothschild.
The loan market is welcoming both bids and looking forward to a significant new deal irrespective of the outcome of the bidding battle.
Even if Vivendi does not sell SFR, the French media and telecoms giant will go ahead with its earlier plan to spin off SFR as a separate unit this summer and is lining up around 7 billion euros of loans to support a demerger.
($1 = 0.7214 euros) (Editing by Tessa Walsh)