E-Plus: funky finance
Last month E-Plus Mobilfunk closed syndication on its Eu2.25
billion term loan (combined with a Eu250 million revolver). The
deal attracted 12 more banks at lead arranger level, to add to the
four bookrunners already in place, and has moved swiftly on into
general syndication.
Despite having recently forked out for one of the six German UMTS licenses and facing huge build-out bills, E-Plus is set to remain EBITDA-positive. That commercial strength was a crucial factor in raising the financing. It lent the deal immediate appeal, in contrast to some of its counterparts that are experiencing protracted syndication and sell-downs.
Bank of America, Citibank, Deutsche Bank and JP Morgan Chase were mandated by E-Plus as bookrunners in January 2001 but did not underwrite the whole amount. Last month's first stage syndication ? when offers were put out for more lead arrangers at tickets of Eu250 million and Eu8175 million ? came in 90% over-subscribed.
ABN Amro Bank, Bank of Tokyo-Mitsubishi, Barclays, Caja de Madrid, Credit Lyonnais, CSFB, HypoVereinsbank, ING Barings, Mizuho Financial House, Rabobank, Royal Bank of Scotland, Sumitomo and West LB signed up as mandated lead arrangers.
Along with the bookrunners, members of this group all hold adjusted tickets of Eu125 million. KfW and Dresdner, buying in at slightly less, have both assumed the role of lead arranger. General syndication has now been launched, offering three prices ? Eu60, Eu40 and Eu20 million.
Bringing in such a large number of lead arrangers holding relatively small amounts should limit perceived risk at final general syndication.
Full underwriting was secured early, with all participating banks inside their take-and-hold range. This trend has been noted on other recent large telecoms deals, notably FirstMark Deutsche and the recently closed Jazztel. E-Plus held an additional allure for lenders, since those joining at senior level were offered the same fees and status as the bookrunners.
There are a number of explanations as to why the deal was so favoured by the markets. The primary attraction cited by many is the financial and technical expertise the company has inherited from its sponsors. 77.5% owned by KPN Mobil, a subsidiary of KPN, and 22.5% by US BellSouth, E-Plus is grounded in a proven track record of telecommunication operations.
But it is parental financial clout that really commands attention. In total, the shareholders have injected Eu10.3 billion. Unlike many of the other successful bidders across Europe, E-Plus was able to pay for its UMTS license with cash.
Eu1.5 billion of the total Eu2.5 billion currently being syndicated has been earmarked for re-financing a previous project finance transaction. Once all the money has been dispersed, debt will still stand at only 18%.
Liquidity for future growth therefore remains strong. In fact, not only has E-Plus been EBITDA-positive for some time, but is projected to continue to be so throughout the build-out of its 3G network.
E-Plus' has a fully funded business plan, an attribute both rare and sought after, given the amounts typically being spent by expanding telecommunications companies. The plan stipulates that the debt raised is not to be used directly for the development of 3G interests. This goes some way towards mitigating perceived risk, since banks have become increasingly wary of the projected returns from this hugely expensive and largely untested technology. The Eu1 billion left over after re-financing existing debts will be used to fund enhancement of an existing GMS network, employing a transitional 2.5G technology. E-Plus is not planning to embark on UMTS build-out until the end of 2001 at the earliest and will pay for it with cash flow.
However, investors are not entirely divorced from the risks associated with 3G. Re-payment of the Eu2.5 billion is in part to come from the revenues created after its build out. But, E-Plus, with its strong equity and shareholder base, as well as established and profitable interests in other areas of telecommunications, offers considerable comfort even to those cynical of the benefits of UMTS.
One banker close to the deal believes the success of E-Plus is indicative of a change in attitude to telecoms ? good news for many of the frustrated deals in the project markets.
These include the Eu4.7 billion MobilCom deal, allegedly held up whilst vendor financing was structured into the deal.
However, if the tides are turning, they are doing so slowly and it is likely that the highly leveraged companies are still going to have trouble convincing lenders to put up the massive sums they so desperately need to pave the way for third generation phones.
E-Plus
Status: In general syndication
Description: To re-finance existing debt and fund further build out of GMS network
Sponsors: KPN Mobil (77.5%), BellSouth Telecommunications (22.5%)
Debt: Eu2.5 billion, broken down into an Eu2.25 billion term loan and an Eu250 million revolving credit
Bookrunners: Bank of America, Citibank, Deutsche and JP Morgan Chase
Legal advisor to lenders: Linklaters
Legal advisor to consortium: Allen & Overy
Despite having recently forked out for one of the six German UMTS licenses and facing huge build-out bills, E-Plus is set to remain EBITDA-positive. That commercial strength was a crucial factor in raising the financing. It lent the deal immediate appeal, in contrast to some of its counterparts that are experiencing protracted syndication and sell-downs.
Bank of America, Citibank, Deutsche Bank and JP Morgan Chase were mandated by E-Plus as bookrunners in January 2001 but did not underwrite the whole amount. Last month's first stage syndication ? when offers were put out for more lead arrangers at tickets of Eu250 million and Eu8175 million ? came in 90% over-subscribed.
ABN Amro Bank, Bank of Tokyo-Mitsubishi, Barclays, Caja de Madrid, Credit Lyonnais, CSFB, HypoVereinsbank, ING Barings, Mizuho Financial House, Rabobank, Royal Bank of Scotland, Sumitomo and West LB signed up as mandated lead arrangers.
Along with the bookrunners, members of this group all hold adjusted tickets of Eu125 million. KfW and Dresdner, buying in at slightly less, have both assumed the role of lead arranger. General syndication has now been launched, offering three prices ? Eu60, Eu40 and Eu20 million.
Bringing in such a large number of lead arrangers holding relatively small amounts should limit perceived risk at final general syndication.
Full underwriting was secured early, with all participating banks inside their take-and-hold range. This trend has been noted on other recent large telecoms deals, notably FirstMark Deutsche and the recently closed Jazztel. E-Plus held an additional allure for lenders, since those joining at senior level were offered the same fees and status as the bookrunners.
There are a number of explanations as to why the deal was so favoured by the markets. The primary attraction cited by many is the financial and technical expertise the company has inherited from its sponsors. 77.5% owned by KPN Mobil, a subsidiary of KPN, and 22.5% by US BellSouth, E-Plus is grounded in a proven track record of telecommunication operations.
But it is parental financial clout that really commands attention. In total, the shareholders have injected Eu10.3 billion. Unlike many of the other successful bidders across Europe, E-Plus was able to pay for its UMTS license with cash.
Eu1.5 billion of the total Eu2.5 billion currently being syndicated has been earmarked for re-financing a previous project finance transaction. Once all the money has been dispersed, debt will still stand at only 18%.
Liquidity for future growth therefore remains strong. In fact, not only has E-Plus been EBITDA-positive for some time, but is projected to continue to be so throughout the build-out of its 3G network.
E-Plus' has a fully funded business plan, an attribute both rare and sought after, given the amounts typically being spent by expanding telecommunications companies. The plan stipulates that the debt raised is not to be used directly for the development of 3G interests. This goes some way towards mitigating perceived risk, since banks have become increasingly wary of the projected returns from this hugely expensive and largely untested technology. The Eu1 billion left over after re-financing existing debts will be used to fund enhancement of an existing GMS network, employing a transitional 2.5G technology. E-Plus is not planning to embark on UMTS build-out until the end of 2001 at the earliest and will pay for it with cash flow.
However, investors are not entirely divorced from the risks associated with 3G. Re-payment of the Eu2.5 billion is in part to come from the revenues created after its build out. But, E-Plus, with its strong equity and shareholder base, as well as established and profitable interests in other areas of telecommunications, offers considerable comfort even to those cynical of the benefits of UMTS.
One banker close to the deal believes the success of E-Plus is indicative of a change in attitude to telecoms ? good news for many of the frustrated deals in the project markets.
These include the Eu4.7 billion MobilCom deal, allegedly held up whilst vendor financing was structured into the deal.
However, if the tides are turning, they are doing so slowly and it is likely that the highly leveraged companies are still going to have trouble convincing lenders to put up the massive sums they so desperately need to pave the way for third generation phones.
E-Plus
Status: In general syndication
Description: To re-finance existing debt and fund further build out of GMS network
Sponsors: KPN Mobil (77.5%), BellSouth Telecommunications (22.5%)
Debt: Eu2.5 billion, broken down into an Eu2.25 billion term loan and an Eu250 million revolving credit
Bookrunners: Bank of America, Citibank, Deutsche and JP Morgan Chase
Legal advisor to lenders: Linklaters
Legal advisor to consortium: Allen & Overy
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