The Asian capital markets are once again watching PCCW in anticipation of the successful refinancing of $4.1 billion of the firm's $12 billion bridging loan. Officials at PCCW have already said they have basically closed the books on the new loan, although they are a bit coy about the details. A final announcement is due this Friday, November 10.
According to sources close to the deal, PCCW originally invited eight banks to underwrite the new loan. It was quite bullish in the terms that it attached to the loan. PCCW wants the facility split into three tranches of three year, five year and seven year maturities with bullet repayment of each tranche. It is offering an all in spread in the low 80 basis point (bp) level over Libor for the entire amount which is to be $4.7 billion - $500 million more than PCCW needs to refinance.
To compensate for the price and tenor, PCCW has apparently committed to maintain certain ratios, especially an EBITDA to interest coverage ratio - although what this ratio is has not been disclosed. There are also expected to be improving restrictions on leverage, which should encourage PCCW to reduce the average duration of its debt portfolio as quickly as possible.
All in
According to bankers close to the deal, such an aggressive mandate has not deterred banks from taking the deal. Most are assuming that all four of the original lenders - Bank of China, Barclays Capital, HSBC and BNP - will join the lead underwriting syndicate for the refinancing. Sources at HSBC confirm that the deal is presently with the all-powerful credit committee. However, some sources have suggested that BNP might not join this time.
Other banks that have been mentioned are: Bank of America which was very aggressive in pitching for the first deal; Citibank which is the largest lender in non-Japan Asia and values the syndicated loan business very highly; and Chase, which was very aggrieved to have missed out the first time, although with the recent merger with JP Morgan, Chase is probably more focused on the bond markets these days. There are also suggestions that a Japanese bank could be in the lead group, but which one is unapparent. In total, up to six banks are expected to form the lead underwriting group.
Fundamental to the decision process of the banks deciding whether to take the deal or not is how to view the credit. If they view PCCW as having the stability of a monopoly, utility, telecom service, with 93% market share and strong, predictable revenues, then the deal is a no-brainer. At 80bp over Libor it compares very favourably with credits for similar Hong Kong utilities such as Hong Kong Electric, China Light and Power or Town Gas.
If, however, they view it as little more than a highly leveraged acquisition machine with a rather woolly pan-Asian broadband strategy, then expect the banks to pass.
But since the loan has reached this stage, it would seem obvious that the banks who are considering underwriting it think of the company as a strong, stable utility and must therefore be quite anxious to do the deal. To that extent, this loan should be a flier and come Friday the news should be that the deal has strong support at a relatively cheap level. General syndication will be no hard task.
