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Bank fee potential slashed as Trump ends Broadcom's Qualcomm takeover

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03/14/2018 | 01:07am CEST
A sign to the campus offices of chip maker Broadcom Ltd is shown in Irvine, California

NEW YORK (LPC) - A dozen banks that signed on to provide a record US$100bn bridge loan to back Broadcom Ltd's planned US$117bn takeover of Qualcomm Inc will earn starkly less than planned for extending credit to the chipmaker after US President Donald Trump on Monday blocked the deal over national security concerns.

Broadcom in February detailed the jumbo loan, the biggest committed credit package since global brewer AB InBev's US$75bn loan in 2015 that backed its purchase of rival SABMiller, for what would be the technology sector's largest deal ever. The loans represented a huge windfall for bankers eager to put money to work and rake in related fees.

"Broadcom’s 12 bridge lenders now stand to split a total pool of just US$20m to US$40m in fees," said Jeff Nassof, a director at Freeman Consulting Services. "Had the transaction closed, fees for the proposed long-term debt financing package could have reached 10 times this amount."

The whittled down fees that will be earned include money paid upfront and ticking fees accrued from the time the loan opened, he said. The lost fees include those that would have been taken in by underwriting roughly US$31bn in permanent bond financing that the company said it would issue to reduce the bridge.

The original 12 banks were in the process of downsizing their risk by expanding the bank group when the White House announced it was blocking the bid.


The bank financing package included a US$20bn, one-year cash flow bridge facility; a US$4.477bn, two-year term loan; a US$19.679bn, three-year term loan; a US$19.679bn, five-year term loan; and a US$5bn, five-year revolving credit facility, LPC previously reported.

Bank of America Merrill Lynch, Citigroup, Deutsche Bank, JP Morgan, Mizuho, SMBC, MUFG, Wells Fargo, Scotiabank, BMO Capital Markets, Royal Bank of Canada and Morgan Stanley were lead arrangers and joint bookrunners on the syndicated loan.

The banks were either unavailable to immediately comment, or declined to comment.

Silver Lake, KKR and CVC had also agreed to provide US$6bn of convertible bond financing to Broadcom.

With this milestone loan going away, based on administration worries that the merger would give China an upper hand in mobile communications, bankers will have plenty of lending capacity to apply to other situations. The decision to scuttle the deal was based on concerns that the US advantage would be lost to China if Singapore-based Broadcom took over San Diego-based Qualcomm, according to a White House official.

"There is no issue with capacity in the market, full stop,” said a banker not involved in the deal. “Banks are looking to do business. People would be disappointed with this going away."

Initial margins are 100bp over Libor on the cash flow bridge, 112.5bp on the two-year term loan, 125bp on the three-year term loan and revolver, and 137.5bp on the five-year term loan, Thomson Reuters LPC previously reported. The revolver pays an initial commitment fee of 12.5bp.

In syndicated loans for investment grade credits, a portion of the bridge fees is usually paid at the announcement of the deal. The other portion is paid at 90 days.

The first dozen banks only got to cash in on the first part.

“If you get an executive order that the deal is not going to happen the [loan] deal goes away,” the banker said.

Qualcomm, which has emerged as one of the biggest competitors to China's Huawei Technologies Co Ltd in the sector, making it a prized asset, has consistently rebuffed Broadcom's acquisition efforts.

Broadcom said in a statement that it was reviewing the presidential order and "strongly disagrees that its proposed acquisition of Qualcomm raises any national security concerns."

Potential benefactors of the freed up lending capacity generated by the failed Broadcom takeover include US health insurer Cigna Corp, which is supporting its roughly US$52bn acquisition of pharmacy benefit manager Express Scripts Holding Co with a US$26.7bn 364-day senior unsecured bridge loan facility.

The company, in announcing its merger last Thursday, had said it had obtained committed debt financing from Morgan Stanley and MUFG.

(Reporting by Lynn Adler and Michelle Sierra; Editing by Jon Methven and Leela Parker Deo)

By Lynn Adler and Michelle Sierra

Stocks mentioned in the article
ChangeLast1st jan.
CIGNA -0.53% 174.08 Delayed Quote.-13.48%
EXPRESS SCRIPTS HOLDING CO -0.16% 79.23 Delayed Quote.7.32%
QUALCOMM -0.43% 58.5 Delayed Quote.-8.23%
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Financials ($)
Sales 2018 57 225 M
EBIT 2018 19 278 M
Net income 2018 9 491 M
Debt 2018 100 B
Yield 2018 4,07%
P/E ratio 2018 21,23
P/E ratio 2019 18,05
EV / Sales 2018 4,68x
EV / Sales 2019 4,43x
Capitalization 167 B
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Anheuser-Busch InBev Technical Analysis Chart | ABI | BE0974293251 | 4-Traders
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Number of Analysts 30
Average target price 124 $
Spread / Average Target 25%
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Carlos Alves de Brito Chief Executive Officer
Olivier Goudet Chairman
Luis Felipe Pedreira Dutra Leite Chief Financial & Technology Officer
Martin J. Barrington Non-Executive Director
William F. Gifford Non-Executive Director
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