Wall St. relieved but concerns over BCE deal remain

By Anupreeta Das - Analysis

SAN FRANCISCO (Reuters) - If relief was the first emotion the would-be buyers of BCE Inc (BCE.TO) (BCE.N) felt after Friday's court decision allowing the $34.1 billion deal to proceed, anxiety may have been the second.

That's because questions remain about whether the deal will now go through and, if so, at what price.

Pinning down final financial terms for the deal -- with a June 30 deadline looming and credit markets tight -- could still create trouble for the world's biggest leveraged buyout.

The deal may be renegotiated at a lower price or may even fall through if the banks that committed to financing the debt portion and the private equity buyers of BCE, Canada's largest telecommunications company, are unable to reach an agreement.

"In this credit market, that's a hell of a lot of financing that has to happen and (whether the deal will get done) is a big question mark," said Marshall Sonenshine, chairman of New York-based investment bank Sonenshine Partners.

"Nobody should be cavalier in this market about predicting the completion of a $34 billion deal," he said.

The once-frothy leveraged buyout market was knocked out cold by last summer's subprime mortgage contagion, which eventually killed investor appetite for the high-yield loans and bonds used to finance such deals.

Wall Street banks were thus stuck with billions of dollars in leveraged loans and forced to write down the value of loans in a number of leveraged buyouts, leading to tension between them, the private equity buyers and target companies.

In a joint statement after Friday's decision, the banks that agreed to finance the BCE deal said they stand behind their original commitment. They also said they expect the deal to close as per the definitive agreement with the buyers.

The buyers of BCE, parent company of Bell Canada, include the Ontario Teachers Pension Plan; private equity firms Madison Dearborn Partners, Merrill Lynch Global Private Equity and Providence Equity Partners; and Toronto-Dominion Bank (TD.TO).

The lead lenders include Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE) and Royal Bank of Scotland Plc (RBS.L).

SOME HOPE FOR VETO

But a source told Reuters on May 19 that the banks funding the deal have sought to renegotiate the financing terms and had submitted new financing terms to the buyout group, which contained higher rates and other "onerous" conditions.

In an interview prior to the decision, Columbia University Law School Professor John Coffee said concerns about financing would continue to hamper the deal after the court ruling.

"There probably will be some banks quite happy that the debt holders may be able to veto the transaction," he said.