RLPC-Terms change on Master Blenders' loan after lender pushback

LONDON, June 20 Fri Jun 20, 2014 9:50am EDT

LONDON, June 20 (Reuters) - Banks have changed the terms on a 7.6 billion euro ($10.36 billion) equivalent merger and refinancing loan for Dutch coffee and tea company DE Master Blenders' after investors protested about delayed fee payments, bankers said on Thursday.

Investors were unhappy that fee payments were conditional on the completion of the merger between DE Master Blenders' and the coffee business of Mondelez International.

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.

Arranging banks Bank of America Merrill Lynch, JP Morgan and Morgan Stanley have adjusted the deal to guarantee the fee payments.

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

Investors were worried about not earning any fees for a year until the merger was completed and the fact that existing fund investors were not able to roll into the new deal.

The key changes are to a 'ticking fee' which compensates investors until the merger completes and the date that the deal will fund.

Some investors felt committing to the deal on the original terms left them exposed for too long without receiving cash.

The term loan B, which was originally not due to fund until the acquisition completed in 2015, will now fund and be put into an escrow account after 90 days.

The ticking fee will now be paid quarterly, instead of accruing for a year. It will pay 50 percent of the margin between 61 and 90 days, the full margin from 91-330 days, and the full margin plus a Libor/Euribor floor (which guarantees a minimum return for investors), after 330 days.

"The funds were 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," a banking source said.

The original issue discount on the term loan B is guided at 98.5 to 99.

Other terms remain the same which will disappoint some investors. The term loan A, which is sold to bank investors and will fund in the next couple of weeks, refinances a 3.3 billion euro leveraged loan which backed Joh A Benckiser's 7.5 billion euro acquisition of Master Blenders in 2013.

Existing fund investors in the 3.3 billion euro leveraged loan are not being allowed to roll into the new term loan B, which funds the merger, and they will be repaid.

Some CLO funds that were in the existing loan have passed their reinvestment periods and are therefore unable to reinvest the repayment into the new deal.

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

Some funds wanted to be allowed to join the term loan A and roll into the deal but were not allowed to do so by the arranging banks.

"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.

As part of the merger, Mondelez will receive around $5 billion in cash, as well as a 49 percent equity stake in JDE. ($1 = 0.7336 Euros) (Editing by Tessa Walsh)