Goldman Sachs outbid other banks, including incumbent Bank of America, for Solectron Corp.'s new $500 million bank deal by proposing a three-part financing package that re-works the company's capital structure. In addition to refinancing an outstanding $100 million Bank of America-led credit facility, the company was looking to raise capital to pay down $615 million in puttable Liquid Yield Option Notes (LYONs) underwritten by Merrill Lynch and coming due at the end of this month. In a reverse twist of what has been the rallying cry of commercial banks using their lending capabilities to win investment banking business Goldman leveraged its investment banking prowess into a mandate for the bank credit.
Thomas Alsborg, director of investor relations for Solectron, said the company was working with Goldman on the bigger balance sheet re-structuring when it decided to include a refinancing of its credit facility and have Goldman lead that business for the company as well. Goldman pitched the company $1.1 billion in mandatory convertibles, $500 million in straight bonds, and a $500 million credit facility to pay off the puttable LYONs this month. The additional financing will be used to refinance some of the $4 billion in remaining LYONS the company has outstanding. When asked why the company switched banks, Alsborg said, "Our objective is to have relationships with multiple banks." A spokeswoman for B of A declined to comment on the firm's bid for the bank deal, but confirmed that it will play a role on the new credit.
A source close to the deal said B of A and J.P. Morgan have committed $100 million each to the new $500 million credit facility, which hit the market two weeks ago, serving as administrative and co-syndication agents, respectively. Bank of Nova Scotia has reportedly committed $75 million. A spokesman at J.P. Morgan declined to comment on the firm's involvement with the deal. A spokeswoman at Scotia also declined to comment.
Alsborg explained that the $400 million in additional bank financing is reflective of the increasing needs of an expanding company. "We have just grown up a little and need a larger facility," he said. The deal is expected to close at the end of February.