| NEW YORK
NEW YORK Dec 14 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,
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