Catalyst

Companies involved in three pending $10-billion-plus industry acquisitions in the U.S. each indicated last week that financing for the deals remains in place, despite the much tougher credit conditions that have emerged since the deals were announced.
Sabic, which is paying $11 billion to acquire GE Plastics, scaled back the size of a planned bond offering by nearly 50% last week, in one sign of the change in credit conditions. Sabic had planned two separate eight-year bond offerings of $1.95 billion and €590 million ($800 million), but now will pursue a single $1.5-billion bond offering, according to Moody’s (London). The yields on the bond could exceed 10%, according to published reports, a sign that borrowing costs have moved sharply higher in recent weeks. Sabic will increase borrowings under senior secured credit facilities, typically loans from banks or other institutions, to $7.7 billion, from $6.4 billion, to close the financing gap. Sabic is expected to close the purchase of GE Plastics by late September.
Basell, meanwhile, said last week that it will borrow up to $21 billion to finance its acquisition of Lyondell. Basell obtained debt financing commitments as of July 16 from Citigroup, Goldman Sachs, and Merrill Lynch, and as of August 8 from ABN Amro, according to regulatory filings. The lenders have agreed to provide $14 billion in senior secured credit facilities. Basell will seek to raise the remaining $7 billion from the sale of high-yield bonds or secondary senior secured credit facilities. Lyondell is also apparently monitoring credit markets. “Basell has substantial assets, and, if the financing were not obtained and the merger did not occur, Lyondell would have recourse against Basell,” Lyondell said in regulatory filings last week.
Hexion, which is set to acquire Huntsman for $10.6 billion including debt, restated in quarterly regulatory filings last week that the deal is fully financed and set to close in first-quarter 2008, pending regulatory review. Hexion is number one globally in epoxies, and Huntsman is number three. Hexion, which is owned by private equity firm Apollo Management, may actually benefit from a prolonged antitrust review and it may be happy to extend the close until early next year. “It will be very, very difficult for private equity to issue high-yield bonds before year-end,” says one investment banker.