(Corrects second paragraph to clarify ownership of Amex GBT)
NEW YORK, May 12 (LPC) – A US $ 1.1 billion leveraged loan partially backing the Carlyle Group and Singaporean sovereign wealth fund GIC Pte Ltd in the purchase of a 20% stake in American Express Global Business Travel (Amex GBT) has been called into question as investors seek to withdraw from the transaction.
Carlyle and GIC cite a large adverse effect (MAE) to exit the investment. They argue that an EAW occurred because limited demand for Amex GBT deteriorated the company’s value and outlook. Amex GBT is a 50-50 joint venture between American Express and a group of investors.
Amex GBT launched the $ 1.1 billion term loan in February, according to two sources familiar with the funding. The purchase was due to be finalized on May 7.
In mergers and acquisitions, the literature includes AED language that highlights a change in circumstances or an “act of God” that significantly reduces the value of a business. AEMs are difficult to invoke successfully. While the coronavirus has hurt the revenues of various companies, to grant an exit, investors must argue that the negative effect had a greater impact on Amex GBT than its peers in the industry.
The investors argue that the MAE clause in the purchase contract with Amex GBT did not include an exclusion clause on a potential pandemic, and cite this as a reason for terminating their investment, according to two other sources. They also argue that the proceeds from the $ 1.1 billion loan were revised by Amex GBT to be used for “emergency” financing rather than debt recapitalization, according to the second pair of sources.
The proceeds were limited to funding a possible acquisition and a dividend to shareholders, the second pair of sources said. Investors argue that changing the loan proceeds without their consent constitutes a breach of the purchase contract.
On May 6, Juweel Investors Limited, the sellers, filed a lawsuit with a Delaware court. He asked the court to review the case on an expedited basis to complete the purchase by June 30, the first two sources said. The sellers say the purchase contract included wording depicting a “global event” and are confident the credit agreement is favorable to its lenders, the First Pair of sources said.
The seven-year Amex GBT loan consists of a funded tranche of US $ 615 million and a deferred drawing term loan (DDTL) of US $ 515 million. The financed portion will repay an existing loan of US $ 249 million, make a distribution to shareholders of US $ 55 million and set aside US $ 135 million for future operating needs, according to a presentation by lender Amex GBT of the. April 16.
Initially, the proceeds from the $ 615 million tranche were to pay a dividend to shareholders of $ 484 million, refinance the existing loan and support the acquisition of business travel assets, according to a Feb. 11 report from Moody’s. Investors Service. Use of the product has been revised to take into account the market disruption caused by the pandemic and appease lenders who may have been uncomfortable with a larger dividend, a source close to the company said.
Credit Suisse, the lead arranger of the term loan, is still prepared to provide debt under the purchase agreement if the transaction closes, according to a court document viewed by Refinitiv LPC. In an email sent on May 4, Credit Suisse said it was not aware of any lender that did not intend to fund the allocated portion of the syndicated loan, according to the court document.
A spokesperson for Credit Suisse declined to comment.
Several media outlets first reported on May 9 the news of Carlyle and GIC’s decision to withdraw their investment in Amex GBT.
A spokesperson for GIC did not respond to a request for comment.
Amex GBT raised $ 1.1 billion in the syndicated loan market as fears of a pandemic grew and investors were wary of lending to a company exposed to low travel demand.
Amex GBT increased the loan margin and included a lender-friendly ticking fee on DDTL, Refinitiv LPC reported on February 27. The travel company paid investors a ticking fee from day one of the loan agreement at 100% of the loan margin plus Libor.
The seven-year loan yields a 400bp margin on Libor with no floor on the benchmark against an initial pitch of 350bp. The initial issue’s discount was finalized at 98 cents to the dollar, banking sources said at the time.
Given the difficulty of calling an EAW, investors are confident that the loan will continue to trade in the secondary market. The loan was listed at 87-90 cents on Monday, according to a source.
“It is difficult to see that this is an EAW because normally the acts of God are excluded,” said one investor. “It will depend on the public and their sympathy. “
Typically, loans backing mergers and acquisitions are taken off the market if a deal is canceled, the same investor said. Since the Amex GBT loan also refinances an existing loan and pays a dividend, it is difficult to predict what will happen if Carlyle and GIC are successful in exiting the investment.