November 29, 2016 / 3:56 PM / a year ago

LPC-Banks to launch US$5bn-equiv Micro Focus loan in Jan

LONDON, Nov 29 (Reuters) - Around US$5bn-equivalent of leveraged loans backing UK software company Micro Focus International’s acquisition of Hewlett Packard Enterprises’(HPE) software business is due to launch to syndication in January, banking sources said.

The US$8.8bn merger, which was announced in September, is structured as a reverse takeover and is expected to close in the third quarter of 2017. The combined company will operate under the name Micro Focus.

JP Morgan is leading the corporate leveraged loan financing to back the transaction, which is due to launch for general syndication to institutional investors and banks once the market opens after the Christmas break, the sources said.

The 5bn-equivalent loan is expected to include around 1bn for European investors, the sources said. There is also a US$500m revolving credit facility.

The financing was shown to a select group of European investors last week, to run it by them and sound out ideas. However, it will not be part of the flood of deals coming to market before the end of the year.

The deal is expected to be well received in Europe’s leveraged loan market, with investors eager to put new money to work amid a lack of event-driven financings.

“It is good to see the January pipeline building already. Hopefully it will be a good start to the year,” a senior leveraged banker said.

The deal will be funded through the issuance of Micro Focus shares representing 50.1% of the combined group to HPE and a pre-completion cash payment of US$2.5bn from HPE Software to HPE.

The loan will support the pre-completion cash payment by HPE Software, finance a US$400m cash distribution to current Micro Focus’ shareholders, pay fees and royalties as well as refinance Micro Focus’ outstanding debt of around US$2.1bn.

Estimated pro forma net debt to Ebitda of the combined group will be around 3.3 times facility Ebitda. The company is targeting a net debt ratio of 2.5 times within two years of completion.

The deal is the latest in a series of asset disposals by HPE, which agreed in May to spin off and merge its struggling technology services business to Computer Sciences Corp, in a transaction valued around US$8.5bn. The acquisition by Micro Focus shrinks the Silicon Valley pioneer again while catapulting the little-known British firm into the top tier of European tech companies.

Headquartered in Newbury, Micro Focus had a market capitalisation of £4.45bn before the deal. It has been snapping up software companies but this is its largest deal to date. Earlier this year, it acquired US firm Serena Software for US$540m. (Editing by Christopher Mangham)

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