Fit for a king
Mobile tower operator Crown Castle whipped up more than US$11bn of cash commitments over a weekend to back an equities offering for a company on the lowest rung of the investment-grade ladder.
Crown Castle’s bridge loan for its US$7.1bn cash purchase of Lightower Fiber Networks was the third-largest bridge-to-equity financing ever, and the second-biggest underwritten commitment in the US this year for a Triple B minus credit. It was a deal that lead-left arranger Morgan Stanley calls “the marquee event financing Street-wide globally this year”.
The bank swiftly pulled together a US$7.1bn 364-day bridge and a US$4.2bn backstop for an existing term loan and revolver that allowed Crown Castle to make its biggest-ever acquisition.
Bookrunners Morgan Stanley and Bank of America Merrill Lynch led the bridge loan, which scored a 100% hit rate when syndicated to Crown Castle’s relationship banks within three days of the July 18 announcement.
The deal was never funded as Crown Castle rapidly replaced the bridge with US$5.5bn of equity and equity-linked securities along with US$1.75bn of senior unsecured notes within a week of announcing the acquisition.
The bridge-to-equity structure helped the borrower “deliver all-cash to a seller, even though you don’t have the credit or ratings capacity to do an all-debt financed acquisition”, said Scott Ashby, a managing director at Morgan Stanley.
The deal needed a backstop facility as failing to issue the equity would have triggered Crown Castle’s existing loan covenants, which could have forced the company into issuing large high-yield bonds.
“A complicating factor was that they had a revolver and term loan out, where if you didn’t issue the equity you would trip all of the covenants in their existing facilities and cause an acceleration event,” Ashby said.
That’s where the coordination between Morgan Stanley’s investment-grade and non-investment-grade teams kicked in to ensure that the bank’s leveraged finance team could take the strain if the equities issue couldn’t be completed.
“We had to make sure our leveraged finance distribution view supported issuing that quantum of financing – over US$7bn of financing – into the non-investment-grade credit markets,” Ashby said.
Suspense about how the equity and debt pieces would interact was short-lived, however, as both instruments were priced within one week of the transaction announcement.
Crown Castle was never in any risk of default, said Morgan Stanley managing director Anish Shah.
“Underwriting the bridge loan was all about the connectivity of Morgan Stanley, because you have to have confidence in the equity distribution and confidence in the debt distribution,” Shah said.
“The equity distribution is critical, because if you get the equity done correctly, then they don’t have any covenant issues, which means that the backstop goes away, which is what everybody wanted.”
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