A Commercial bridge loan for up to US$13.7 billion to back Amazon\’s buying of upscale grocer Whole Foods Markets, which is second-largest US commercial bridge loan on this year, is stoking merger-related financing that\’s been stifled by prolonged uncertainty about the Trump administration\’s policies.
Even with Amazon\’s 364-day loan, and this is the thirteenth largest before two decades, US bridge financing of about US $57 billion this year is 21 percent below what the same period last year, including deals closed and in process.
As a result, fee income for banks arranging and syndicating the bridge facilities and longer-term funding is being liquidated. Commercial bridge loans usually are replaced with permanent financing, including equity and bonds.
\”Everyone is hoping that Amazon and Healthy foods is the start of the next wave, very little no telling if that\’s the case possibly there won\’t be anything else big until there\’s more clarity around tax policy.
Amazon.com stated it expects to fund its US$13.7 billion merger with debt that may include senior unsecured notes, commercial bridge loans, term loans, or any combination, coupled with cash on hand.
The Whole Foods acquisition, which as outlined by Thomson Reuters ranks as the eleventh biggest global retail deal and also the fourth biggest US retail deal on record, will assist boost fee income for lenders at the tail end of a tough first half.
Bridge financing until now this year roughly matches volume inside the same period of 2015, and is the smallest since about US $31 billion four years ago.
Earlier this year, several high-profile insurance broker mergers were scuttled by US antitrust rulings, additionally, the lack of action on tax, trade and healthcare legislation is stifling the pace of new M&A, bankers noted.
Some of your year\’s borrowers are replacing commercial bridge loans speedier with permanent financing, expecting little regulatory scrutiny or opposition recommended to their M&A deals, several bankers and analysts said.
At one time, companies are taking advantage of ongoing lofty investor need for bonds and other debt, and searching to lock in still low borrowing costs.
Given the hardiness on the markets, and the current situation with many different borrowers not having significant antitrust issues, borrowers have elected to strike the bond market immediately versus waiting many months.
The swifter pace of swapping from commercial bridge loans to bonds, together with the reduced overall loan volume, is weighing on total fees earned by lending banks.
Fee income from providing commercial bridge loans is US$109 million to date this year, a 47 percent slump with the same time last year, according to a Freeman Consulting Services analysis based upon LPC data.
The fees earned from arranging permanent financing on those loans have declined, although more modestly, by around 21 percent to US $172million.
US medical supplier Becton Dickinson\’s US$15.7 billion commercial bridge loan to order medical technology company C R Bard, this year\’s largest US bridge financing, is really an example of the quicker turnaround to longer-term debt.