NEW YORK • Xerox has arranged a US$24 billion (S$32.4 billion) loan with a group of banks as it continues its pursuit of HP.
It is the largest bridge loan in the technology sector, surpassing IBM's US$20 billion facility in 2018 for its acquisition of Red Hat, according to data compiled by Bloomberg.
The rankings exclude the US$51.2 billion bridge loan, which was part of a larger US$100 billion debt financing, for the failed Broadcom takeover of Qualcomm. That deal was blocked by US President Donald Trump.
The Xerox bridge loan is also the first jumbo acquisition financing to emerge in the investment-grade loan market this year, which will be welcome news to banks hoping for more merger activity in 2020 after the pipeline dwindled last year.
Citigroup, Mizuho Financial Group and Bank of America have provided the debt commitment. It is comprised of a US$19.5 billion 364-day facility, which is expected to be syndicated, and a US$4.5 billion 60-day facility intended to be replaced by cash on HP's balance sheet, according to a filing.
Companies typically replace bridge loans with bonds before a deal is completed.
The debt pledge is intended "to remove any doubt" about Xerox's ability to raise financing, according to a public letter sent on Monday from Xerox chief executive John Visentin to HP's board of directors.
The letter referenced conversations with HP's largest shareholders that revealed California-based HP and its advisers had questioned the smaller suitor's ability to raise the money needed to finance the acquisition.
Personal computer maker HP rejected Xerox's US$22 per share offer last November, saying it"significantly" undervalued the company, following which the copy machine maker took the offer directly to HP's shareholders. HP also declined Xerox's request to open its financial books.
Xerox has engaged in "constructive dialogue" with many of HP's largest shareholders, said Mr Visentin in the letter. "My offer stands to meet with you in person, with or without your advisers, to begin negotiating this transaction," Mr Visentin said. A representative for Xerox declined to comment.
Connecticut-based Xerox initially lined up financing from Citigroup in November, Bloomberg reported.
The new US$4.5 billion facility offers an initial margin of the London interbank offered rate (Libor) plus 1.25 per cent, while the opening pricing for the US$19.5 billion facility is Libor plus 1.375 per cent. Existing ratings are BB+ from S&P Global Ratings and Ba1 from Moody's Investors Service.
Xerox became a fallen angel in 2018 after both S&P and Moody's downgraded the company to high-yield amid falling revenue and challenges in the sector .
HP is rated Baa2 by Moody's and BBB by S&P.
Xerox last raised a US$2.5 billion bridge loan in 2018 for its purchase of Japan's Fujifilm with a margin of Libor plus 1.375 per cent. It carried ratings of Baa3 from Moody's and BBB-from S&P at the time.
"Though Xerox's assertion that the combined company is expected to have an investment-grade credit rating may remain in question, funding should no longer be a concern following US$24 billion in binding financing commitments," Bloomberg Intelligence analyst Robert Schiffman wrote on Monday.
BLOOMBERG, REUTERS
