RLPC-Lenders pushback on Master Blenders' 7.6 bln euro loan

LONDON, June 19 Thu Jun 19, 2014 12:09pm EDT

LONDON, June 19 (Reuters) - Lenders have asked to change the terms of a 7.6 billion euro ($10.36 billion)-equivalent loan that finances Dutch coffee and tea company DE Master Blenders' merger with the coffee business of Mondelez International and refinances existing debt, banking sources said on Thursday.

Bank of America Merrill Lynch, JP Morgan and Morgan Stanley are leading the financing and are in discussions with institutional investors, which are concerned over the prospect of not earning any fees for the first year and inability to remain invested in the existing loan, under the new deal's structure.

The deal includes a 2.9 billion euro term loan A (TLA) and 500 million euro revolving credit, both paying 300 basis points (bps) and a 4.2 billion euro-equivalent dual-currency term loan B (TLB), paying 325bps with a 75bps floor.

The pro rata tranches will refinance a 3.3 billion euro leveraged loan, which backed Joh A Benckiser's 7.5 billion euro acquisition of Master Blenders in 2013.

Institutional investors are pushing back as they have not been offered a cashless roll on the TLB, as it will be made up of new money to fund the merger. A refinancing usually triggers a repayment and reinvestment of money but a cashless roll allows investors to go into a refinanced deal without being repaid first.

Since a number of CLOs that invested in last year's financing are now past their reinvestment period, they will not be able to reinvest the cash in any new deals once repaid.

"For CLOs past reinvestment period, the loan is getting repaid which means managers lose assets under management, fees and equity investors lose yield," a banking source said.

Some lenders want an institutional carve out on the TLA to enable a cashless roll. One of the sources said a 200 million euro TLA institutional carve out would be large enough to satisfy demand.

An advantage to the TLA is that it is due to fund in the next couple of weeks whereas the TLB is not due to fund until the acquisition closes in 2015.

"Banks find it far easier to sit on an unfunded commitment than a fund. It is perplexing they have chosen to do it this way round, especially as the company needs to tap a lot of liquidity" a second banking source said.

TICKED OFF

Other lenders want an improvement to a ticking fee. As the TLB will not fund until the acquisition closes in 2015 a ticking fee has been offered and is expected to pay nothing for the first 60 days, 50 percent of the margin between 61 and 90 days, the full margin during 91-330 days, and the full margin plus the floor after 330 days.

As it stands the ticking fee will not pay anything out for a year and will accrue instead. It could also be put into escrow. Some investors feel it is too long to be committed to a deal without receiving cash. Investors also worry that if the M&A does not go ahead, they will be left with nothing.

"The funds are being asked to buy something that does not fund for a year, which isn't good for equity distributions for the first year of a CLO. If the M&A does not happen, the investors will not be in a good position after being repaid by the TLA and earning nothing on the ticking fee. What has been proposed is leaving funds too exposed and it is risky," the first banking source said.

A decision and any changes to the deal are likely to emerge in the coming days once US investors have also had time to digest the information. The original issue discount is expected to be around 99-99.5.

Mondelez and Master Blenders announced in May that they would combine their coffee businesses into a new company called Jacobs Douwe Egberts (JDE), based in the Netherlands. As part of the merger, Mondelez will receive around $5 billion in cash, as well as a 49 percent equity stake in JDE. [ID: nL3N0NT3UP]

Master Blenders declined to comment. ($1 = 0.7336 Euros) (Editing by Christopher Mangham)

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