Deutsche Bank and RBC Capital Markets have landed lead roles on an underwritten credit facility backing Petro-Canada's C$3.2 billion (USD$2 billion) acquisition of the international oil and gas operations of Veba Oil & Gas from Veba and BP. A banker familiar with the deal said the two banks are looking for co-arrangers for the C$3.5 billion loan and general syndication is slated for next month.
RBC is global lead arranger and has underwritten 65% and Deutsche Bank is lead arranger, underwriting 35% of the deal. The deal breaks down into five tranches: a C$1 billion, 18-month loan; a C$750 million, 364-day facility; a C$750 million, two-year facility; a C$700 million, three-year facility; and a potential $300 million, five-year loan to be syndicated to U.S. and European banks, depending on the success of the Canadian tranches. Spreads are still being determined, said a banker. RBC is a historic relationship lender and Deutsche Bank has a strong international presence, said one banker, commenting on the choice of lead underwriters. RBC bankers declined comment and Deutsche Bank officials could not provide comment by press time. Harrison Lovegrove & Co. was the M&A advisor.
Ron Brenneman, Petro-Canada president and ceo, said in a conference call with analysts that the company has an underutilized balance sheet enabling the all-cash acquisition, and avoiding any shareholder dilution. He did not return calls seeking further details on the bank credit or the company's selection of banks. The financing is in the form of an interim facility, and will be termed out, said Harry Roberts, senior v.p. and cfo. Roberts said an all-in rate of 7% is a reasonable estimate for interest costs on the debt. The proposed future ratio of bank debt and bonds is still being ascertained. Standard & Poor's lowered the corporate credit rating to BBB from BBB+ on news of the acquisition, citing the assessment of the heightened political risks associated with Petro-Canada's expanded international operations and the deterioration of the company's financial risk profile, which is not expected to improve significantly in the near term.