Oil and Gas

LPC: US blue-chip M&A offers loan volume boost

NEW YORK, November 4(Reuters) - U.S. investment grade volume could get a healthy boost before year-end with nearly US$60bn of acquisition loans announced in the last two weeks in advance of the looming Nov 8 U.S. presidential election, according to Thomson Reuters LPC data.

Telecom company AT&T’s US$40bn loan backing its US$85.4bn acquisition of media company Time Warner has been joined by a US$13.6bn loan that finances smartphone chipmaker Qualcomm’s US$38bn acquisition of NXP Semiconductor, and aircraft electronics supplier Rockwell Collins is borrowing US$6bn to finance its purchase of B/E Aerospace.

This US$59.6bn flurry of M&A lending is expected to lift US investment-grade M&A loan volume, which at US$100bn was 26% lower at the end of the third quarter than the same period last year and is far off the full-year total of US$181bn in 2015, the data shows.

The acquisitions were announced in late October during a surge of optimism about Democratic candidate Hillary Clinton’s prospects. Wall Street is favoring a Democratic victory as Clinton’s views towards the financial industry have been perceived as more consistent to date.

“The markets have been favoring a victory for Hillary Clinton because there’s less uncertainty if she wins. With Hillary you could say it’s just more of the same, and nothing’s really going to change,” said Sam Stovall, chief investment strategist at CFRA, an independent equity and fund research firm.

The race narrowed after the FBI said that it was looking further into Clinton’s emails on October 28, but deals are still being announced despite considerable uncertainty about how markets will react if Republican candidate Donald Trump emerges victorious as companies start to look past the election.

Power producer NextEra Energy Inc said on Monday it would buy the remaining stake in Oncor Electric Delivery Co for about US$2.4bn in cash, and General Electric Co said it would merge its oil and gas business with Baker Hughes Inc.

U.S. oil refiner HollyFrontier Corp also announced on Monday that it would buy Suncor Energy Inc’s Petro-Canada lubricants unit for C$1.13bn (US$844m), while chipmaker Broadcom said on Wednesday it would buy network gear maker Brocade Communications Systems for US$5.5bn.

“The devil you know is better than the devil you don’t in terms of the interest rate environment, the deal-making environment, the deal you’ve negotiated versus putting it off and having some unpredicted catalyst such as the outcome of election adversely impact all of those environments and potentially slow down your ability in another month or two from consummating what would otherwise be a good deal,” said Shannon Zollo, a corporate partner with Morse, Barnes-Brown & Pendleton, P.C.

Some loan bankers and analysts are discounting the U.S. election result as a factor governing the flow of new deals to the market, saying that the investment-grade loan market and capital markets are open and eager for M&A loans.

“There are a host of other factors that companies consider when they are negotiating a merger and there will continue to be political and regulatory risks for the approval of some of the deals regardless of the outcome of the election,” said Brian Gardner, a managing director at KBW, a boutique investment bank.


Acquisition loans have been in short supply this year as many companies opted to tap the bond market directly, which helped depress M&A loan volume. This situation reversed in late October with AT&T’s announcement of a jumbo US$40bn loan, which consists of a US$30bn bridge loan and US$10bn of term loans.

Rockwell Collins followed AT&T on October 23 with US$4.5bn of bridge loans and a US$1.5bn term loan and Qualcomm’s purchase of Netherlands-based semiconductor company NXP Semiconductors on October 27 is backed by a US$9.6bn bridge loan and a US$4bn, three-year term loan that is currently in syndication.

This total of US$44.1bn of bridge loans and US$15.5bn of term loans is likely to be boosted further by the string of deals announced this week. NextEra Energy Inc and HollyFrontier Corp have already said that their acquisitions will include debt.

With earnings season well underway and companies emerging from blackout periods, more announcements could be coming in the next few weeks to beat the year-end deadline. Current M&A deals are expected to spark new tie-ups among industry peers eager not to be left behind, bankers said.

“M&A seems to beget M&A,” a second banker said. (Reporting by Karen Schwartz; Editing By Tessa Walsh and Michelle Sierra) ))