When Malaysia Airports Holdings began negotiations in October 2014 to refinance existing debt at its Turkish unit, it was clear that there would be plenty of challenges ahead, but a novel approach to the loan resulted in a smooth takeoff six months later – complete with a rare reverse flex to reduce pricing for the borrower.
MAHB’s discussions centred around debt at Istanbul Sabiha Gokcen International Airport, where the Malaysian borrower was set to trigger change-of-control clauses with a move to buy the 40% stake it did not already own. One of the requirements for the acquisition was approval of ISG’s existing lenders.
Therefore, refinancing the existing debt was critical to MAHB’s plans to take over the additional stake in ISG. However, the new financing faced a major hurdle as MAHB was reluctant to guarantee 100% of the debt before it could complete acquisition of the remaining stake.
The answer came from MAHB’s M&A adviser Deutsche Bank, which introduced a toggle to address the issue – a feature that was unique to the Asian loan markets.
The toggle feature allowed MAHB the flexibility to convert the partial guarantee into a full guarantee at a time of its choosing. To limit the risk to lenders, the facility agreement also came with a long stop date, at which point the margin would step up if MAHB decided to continue with a partial guarantee.
The toggle allowed MAHB to lock in long-term funding at a lower cost for ISG, which was paying north of 500bp over Libor on its existing loans. Moreover, the refinancing was priced as Asian risk, with or without the full guarantee.
In late December 2014, Deutsche, BNP Paribas and CIMB Bank signed and prefunded the €500m seven-year loan to refinance the existing debt at ISG. In mid-January, the trio launched the amortising loan into general syndication offering a top level all-in pricing of 285bp, based on a margin of 275bp over Euribor and an average life of five years.
The €500m financing proved so popular that MAHB was able to reduce the pricing further in early March, in a rare reverse flex on an Asian loan. The margin was cut to 250bp over Libor with the top level all-in reduced to 260bp as a result.
Reverse flexes are seldom seen in the Asian loan market and the previous one saw a 25bp cut in the pricing on a US$200m three-year onshore debut loan for Fubon Bank (China) in August 2014.
The appeal of MAHB’s financing was also evident from the fact that all lenders committing in general syndication to the original loan renewed their commitments despite the reduction in the pricing.
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