The fun and games at BCE just never quit, as Reuters ran a story Monday had had banks threatening to walk away from financing the $35-billion buyout, while analysts assured investors that the banks are on board.
With four banks in talks on terms for loans that will fund the Ontario Teachers' Pension Plan's takeover of BCE, Reuters popped out a piece that quoted an unnamed source as saying: “All options are on the table. Everything you would normally consider is being considered - sticking with the deal, changing the terms, or walking away. It's all still very much up for discussion."
This looks like posturing. The banks signed funding agreements a year ago, and while some of terms of these loans are still being negotiated, the overall pledge to fund the $35-billion takeover is not in question.
Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto-Dominion Bank promised last June to fund the Teachers' purchase.
If the banks do follow through on this threat and walk away, they can count on being sued by both BCE and Teachers. (BCE stock is going to test $30 if the banks do renege.) Given the hoops that the Supreme Court of Canada jumped through to approve this deal, it's fair to say the courts will take a skeptical view of any bank that attempts to bust it up.
So where does the BCE deal go from here?
“We expect all parties to honour their commitments,” said a report Monday from Rob Goff of Haywood Securities.
“While there is a chance some U.S. banks financing the deal may seek to renegotiate terms, we believe these challenges will be successfully overcome,” said Mr. Goff. “Credit markets in the U.S. have improved and the mark to market loss on the deal is far less than the $6-billion expected at the height of the credit crisis.
Recognizing that the BCE leveraged buyout is being followed in every corner of global capital markets, Mr. Goff said: “The minimal savings from renegotiating financing terms do not compare favourably with the reputational damage of such a last minute move.”
