| LONDON, June 19
LONDON, June 19 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
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
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
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.
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)