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By Tessa Walsh and Alasdair Reilly
LONDON, July 18 The 1.2 billion euro bridge loan backing Nokia's 1.7 billion euro acquisition of 50 percent of Nokia Siemens Networks has high pricing to encourage lenders to increase exposure to the ailing Finnish mobile phone company, bankers said on Wednesday.
The loan pays up to 925 basis points (bps) over Libor, the bankers said. This is 15 times higher than the interest margin on Nokia's existing 1.5 billion euro loan, which pays 60 bps over Libor for a rating of BBB+ or below.
Nokia is facing fierce competition from smartphone rivals rivals Samsung and Apple. The loan has been priced up to encourage banks to increase exposure to Nokia in the short term before the bridge loan is refinanced.
The deal, which has been underwritten on a sole basis by JP Morgan, covers the 1.2 billion euro cash portion payable when Nokia buys Nokia Siemens Networks. The balance will be paid in the form of a 500 million euro, one-year secured loan from vendor Siemens
Nokia declined to comment.
Nokia is three years into a turnaround plan that was scheduled to take two years and is facing stiff competition from smartphones and cheaper models from Asian rivals that threaten the company's ability to survive on its own.
The company said that it has sold fewer smartphones and regular mobiles phones than expected in the second quarter on Thursday, showing that it is still far from regaining market share that it has lost to smartphone rivals.
Nokia was downgraded to B+ by Standard and Poor's following news of the acquisition and Moody's also put Nokia on watch for downgrade from its current Ba3 rating.
The loan consists of three tranches. A 500 million euro bridge loan and a 300 million euro bridge loan are being syndicated and JP Morgan is holding a 400 million euro short-term bridge loan which will not be syndicated.
The 500 million euro bridge loan pays 650 bps for the first three months, rising to a maximum margin of 925 bps after nine months.
The 12-month bridge loan is expected to be refinanced with a high-yield bond, but will convert into a four-year exchange bond issued at the Nokia Siemens Network level if the high-yield bond is not refinanced.
The 300 million euro bridge loan is priced at 200 bps for the first six months, rising to a maximum margin of 425 bps after 18 months. The tranche partly refinances debt at the Nokia level and covers asset disposals and other issuance, a senior banker said.
The new loan gives Nokia's existing lenders a headache as they will stay locked in to the company's existing loan which at 60 bps for an A-/A3 rating does not reflect the risk of Nokia's current B+/Ba3 non-investment-grade rating.
Although pricing on the new loan is attractive and the deal offers plenty of ancillary business including bond fees, some existing lenders could be reluctant to increase their commitment -- even in the short term until the bridge loan is repaid.
"We would like to do this from a deal perspective, but could run into a few problems internally. We want to do it, it's a question of whether the company's credit profile will prevent it," bankers said.
(Reporting by Tessa Walsh, additional reporting by Alasdair Reilly)