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Verizon markets $61 billion bridge loan for Vodafone deal: sources

A Verizon wireless store is shown in Del Mar, California June 6, 2013. REUTERS/Mike Blake
A Verizon wireless store is shown in Del Mar, California June 6, 2013. REUTERS/Mike Blake

By Michelle Sierra

NEW YORK (Reuters) - Verizon Communications Inc has started syndicating the $61 billion bridge loan backing its $130 billion buyout of Vodafone Group's stake in its U.S. wireless business, banking sources said, adding that some of the loan may actually be drawn upon due to its huge size.

The 364-day billion bridge loan will be refinanced with a permanent capital structure consisting of $49 billion of corporate bonds and $14 billion of loans, sources told Thomson Reuters. The loans will include a $2 billion revolving credit and $12 billion of term loans.

The massive bridge loan is being seen by many banks as a rare opportunity to make money from investment-grade lending. Underwriting fees for bridge loans are generally richer than those paid for more routine refinancings and fees increase further in the rare cases where bridge loans are drawn upon.

The sources said Verizon may have to draw upon the loan as it may not be able to issue the full $49 billion of bonds by the first quarter of 2014, when the underlying acquisition is expected to close.

Under the mostly cash and stock deal for Verizon to purchase the 45 percent of Verizon Wireless it does not own, Verizon will pay Vodafone $58.9 billion in cash, which will be backed by the loans.

JP Morgan Chase & Co , Morgan Stanley , Bank of America and Barclays are leading the financing and equally underwriting the deal. JP Morgan and Morgan Stanley are global coordinators of the financing and JP Morgan is the administrative agent.

The four have started talking to Verizon's other senior relationship banks that are expected to become co-arrangers of the bridge loan, the sources said. Some of the bridge loan may also be sold to relationship banks in a general syndication.

General syndication of the $2 billion revolving credit is expected to launch next week. The $12 billion term loans will be split evenly between a three-year loan and a five-year loan, the sources said.

Verizon's existing $6.2 billion, four-year revolving credit will remain in place, the sources added.

INVESTMENT GRADE APPEAL

Verizon was downgraded one notch to BBB+/Baa1 after the announcement of the acquisition on Monday. The company said it expected to maintain a capital structure, balance sheet and financial policies consistent with an investment-grade credit rating.

Opportunities for banks to make money out of mergers and acquisitions financing has been limited this year and bank appetite for highly-rated funded loans is increasing with the 2011/2012 industry-wide bout of bank deleveraging firmly in the past.

Syndication of the $12 billion of term loans is expected to run smoothly despite the large size of the facilities.

Banks participating in the bridge loan will earn the right to take part in the bond sale, netting lucrative fees. Unlike loans, corporate bond sales offer banks a large payday without having to commit capital as the bonds are immediately sold off to investors.

Verizon's acquisition was unanimously approved by the boards of directors of Verizon and Vodafone, and is subject to regulatory approvals and the approval of both companies' shareholders.

Apart from the bridge loan, Verizon will also issue common stock currently valued at approximately $60.2 billion to be distributed to Vodafone shareholders.

In addition, Verizon will issue $5 billion in notes payable to Vodafone, and Verizon will sell its 23.1 percent minority stake in Vodafone Omnitel N.V. to Vodafone for $3.5 billion. The remaining $2.5 billion of the transaction value will be a combination of other considerations.

Guggenheim Securities, LLC, JP Morgan, Morgan Stanley and Paul J. Taubman served as lead financial advisors to Verizon, and JP Morgan Securities and Morgan Stanley also rendered fairness opinions in connection with the transaction. Barclays and BofA Merrill Lynch served as financial advisors to Verizon.

Wachtell, Lipton, Rosen & Katz and Macfarlanes LLP are serving as transaction counsel to Verizon, and Debevoise & Plimpton LLP is advising Verizon on its debt financing. ‬

(Editing by Tessa Walsh and Edwina Gibbs)

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