March 21, 2012 / 4:50 PM / in 6 years

UPS-TNT deal to meet high funding appetite: sources

LONDON (Reuters) - United Parcel Service Inc (UPS) (UPS.N) should not face problems funding its 5.2 billion euros ($6.9 billion) acquisition of TNT Express NV TNTE.AS as lenders and investors are eager to take part in the deal, four people familiar with the matter said.

“With all the banks desperate for business, it’s going to be a walk in the park for UPS,” said a lending banker, who declined to be quoted since talks on the deal are private.

The U.S. package delivery firm, which agreed to acquire its Dutch rival on Monday, aims to finance the deal through a combination of $3 billion in cash and debt and the sources said it has up to eight weeks to wrap up a definitive funding package.

UPS is probably pushing at an open door with the banks since the deal looks pretty certain to go through, making it less risky to commit funds to, while a dearth of other deals has left them with few alternative calls on their cash.

UPS is reviewing fundraising options including a bridge loan and an issue of commercial paper - short-term facilities which would then be refinanced through a bond or syndicated loan in a classic scheme aimed at balancing UPS’s debt maturities, sources said.

UPS’s strong AA- credit rating would give it the opportunity to raise cheap funding to recoup some of its debt and strengthen its balance sheet as corporate bond markets are very liquid at the moment, the people said.

UPS has yet to appoint banks to finance the deal but long-term M&A advisers Morgan Stanley (MS.N), UBS UBSN.VX and Bank of America Merrill Lynch (BAML) (BAC.N), who advised UPS on the TNT Express deal, are hoping to get key roles, the people said, noting a large number of other banks were pitching to be part of the deal too.

“All the banks are all over UPS at the moment”, said a second lending banker.

CREDIT RATING

UPS is expected to replicate a successful funding scheme ABB ABBN.VX used for its $3.9 billion acquisition of U.S. electrical components maker Thomas & Betts.

ABB had mandated BAML to underwrite a $4 billion bridge loan and had invited 12 to 15 relationship banks into the loan on tickets of between $450 million and $250 million.

Yet the deal’s implications on UPS’s credit rating remain unclear, sources said.

“It’s not obvious. While a $3 billion deal would not be a problem, at $7 billion, TNT starts to be a big deal”, one of the sources said.

Moody’s on Monday placed UPS’s Aa3 rating under review for possible downgrade after the TNT Express deal.

In a note published on Monday, the rating agency said: “The incremental debt incurred to fund a portion of the purchase price when considered in conjunction with UPS’ existing debt and debt-like obligations could result in credit metrics at levels no longer supportive of the Aa3 rating”.

UPS, which has $4.1 billion in cash and $1.3 billion in marketable securities, also carries about $11 billion in debt and $12 billion of credit lines.

After the TNT purchase, UPS plans to spend a pretax $1.71 billion (1.3 billion euros) on implementation costs to achieve synergies, expecting the deal to boost its earnings this year.

It sees the deal delivering annual cost savings of 400 to 550 million euros in four years and expects the deal to close in the third quarter.

Editing by David Holmes

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