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Trans Retail loan: right call on staggered fees

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By Pan Yue
18 Feb 2020

Trans Retail Indonesia has caused a stir by deciding to structure its new syndicated loan with a relatively rare two-stage participation fee payment. Although not all banks will be wholeheartedly on board, the borrower’s move is savvy under the circumstances.

The retail arm of conglomerate CT Corp, also known as Carrefour Indonesia, launched a dual-currency $740m-equivalent five year loan into syndication last week. The borrowing, which offers only a €593m tranche in syndication, pays the participation fee in two stages — an unusual move in the loan market.

Part of the fee will be paid at the closing of the deal, while the remainder will be paid 15 months after the utilisation date. For instance, banks joining at the top level get a total fee of 115bp, but only 90bp will be paid when the loan is closed, while 25bp will be paid 15 months after the drawdown.

While the structure is not the first of its kind, it is uncommon. But the benefits are many for Trans Retail.

For starters, the loan offers the company flexibility. A key reason it opted for this kind of staggered fee payment is so it can have the option to put together a different — and likely cheaper — repayment package ahead of time. Multiple bankers on the deal told GlobalCapital Asia that if Trans Retail manages to secure another financing to repay the loan within 15 months, it will be able to skip payment on the second leg of the fees. Additionally, if the firm is unable to prepay the loan, it will not have any immediate refinancing pressure. It could still keep the loan by paying the remaining fee.

The arrangement is undoubtedly beneficial to the borrower. It means Trans Retail could potentially even hit the bond market if conditions remain strong and pricing attractive, given it has about 15 months from drawdown to come up with a suitable plan.

What of the lenders? A handful of invited banks showed their displeasure at the structure, saying they prefer to receive the fee in one go, pointing out that the different fee arrangement could make it a tougher sell to their credit committees.  

But given the timing of Trans Retail’s deal, that is unlikely to be a hassle. The loan market in Asia has had a quiet start to the year, thanks to the early Chinese New Year break at the end of January. While many firms had plans to open new loans following the Lunar New Year holidays, that has been put on hold by the outbreak of the novel coronavirus, or Covid-19.

As the loan market is quiet, any deal in syndication is likely to get a decent response from banks hungry to lend and put their balance sheet to work.

Moreover, the Trans Retail deal is appetising purely from a pricing perspective. The margin is in the 200bp to 325bp range based on the borrower’s debt to Ebitda ratio, with the starting margin at 275bp over Euribor. The top-level all-in is 303.75bp. And although the fee will be paid in two stages, bankers still get the majority at the beginning with only a small portion being paid 15 months after.

Trans Retail could also leverage on its parent CT Corp’s halo. Both CT Corp and Trans Retail are well known to bank lenders, and have a large group of relationship banks that would give the deal a close look. A consortium of 10 bookrunners have already pre-funded the loan.

Whether many other borrowers will try a two-pronged approach to fee payment is a question. The last to do so in Asia was Wii, a subsidiary of agribusiness Wilmar International, in July 2018. But in Trans Retail’s case, the strategy could very well be a success thanks to the firm’s reputation and the deal's timing. Watch this space.

By Pan Yue
18 Feb 2020