Billionaire investor Carl Icahn and affiliates provided $3.42 billion, or 66 percent, of the $5.2 billion in committed debt financing to back his proposed leveraged recapitalization plan for personal computer maker Dell Inc.
Lead arranger Jefferies & Co committed $1.6 billion, or 30 percent of the overall financing, according to a Securities and Exchange Commission filing Monday. An additional 14 institutional funds, including pension funds and insurance companies, provided the remainder of about $179 million.
Though the $5.2 billion deal was shown to a mix of U.S. and foreign banks, asset managers, hedge funds and collateralized loan obligation (CLO) managers, the small list of participants suggests Icahn was unable to attract enough interest from alternative sources of capital, sources told Thomson Reuters LPC.
Other market participants evaluating the transaction said it signals Icahn may never have aimed to broadly distribute the deal in the first place.
Icahn on Monday asked for a meeting with Dell Inc's special board committee after lining up the loan commitments to back up his Dell bid. Icahn and Southeastern Asset Management are asking shareholders to tender 1.1 billion shares at $14 apiece in an offer that rivals Michael Dell's and Silver Lake Partners' $24.4 billion buyout offer of $13.65 a share.
The financing commitment marks a crucial step forward for Icahn's bid for Dell. Still, it is contingent on a dozen board appointments, according to the SEC filing.
Unless all twelve of the nominees proposed by Icahn and Southeastern on May 13 are elected to Dell's board, the financing is unlikely to take place.
"It's an exit hatch," an institutional investor said of the condition. "This signals the financing will not happen at all. It's such a high hurdle to get all his guys on the board."
The next step in Icahn's pursuit of Dell is to persuade ISS, an independent shareholder advisory group, to back Icahn's bid. ISS is expected to make public its view as early as this week. A July 18 shareholder vote on Dell's take private plan will follow.
If ISS moves in favor of Icahn's plan, Michael Dell may or may not increase his $13.65 offer to $14 or $14.25, two investors said.
"It's a game of chicken," a shareholder said. "Icahn's going for the bump."
A Dell spokesman was not immediately available for comment. Calls to Carl Icahn were not returned by press time.
Icahn's proposed tender offer will be financed with $7.5 billion of cash on the balance sheet, the $5.2 billion credit facility and $2.9 billion from the sale of receivables.
The $5.2 billion financing includes a $2.2 billion, six-year term loan B-1 and a $3 billion, 3.5-year term loan B-2.
Pricing on the TLB-1 is set at LIB+400 with a 1 percent Libor floor, while pricing on the TLB-2 is set at LIB+350 with a 75 basis-point Libor floor. Both tranches are offered at a discount of 99.5 cents on the dollar and will carry 101 soft call protection for one year.
If Icahn's proposal prevails, the loans would launch to a more broad range of institutional investors before September 30, or the three-month commitment period of the $5.2 billion loans, according to sources.
(Reporting by Michelle Sierra and Leela Parker; Editing by Caleb Frazier and Lynn Adler)