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Derivatives

Polkomtel innovation creates new competition for lenders

Syndicated loans have a tried-and-tested formula that has been almost unchanged since they were created in 1568. That is, until this year when Poland’s Polkomtel proved that you can shock lenders and still be successful in the loan market, writes Michael Turner.

It can be tough to woo an old flame. You can be bigger, stronger and worldlier than potential new suitors, but sometimes it’s just not enough. Europe’s banks found this out in June when Polish telecoms firm Polkomtel spurned their increasingly charming advances and instead picked boutique domestic firm Trigon to co-ordinate its Z7.95bn ($2.43bn) refinancing. Those hoping that the unusual decision created an ordeal will be disappointed — Polkomtel says it would do the same again.

Trigon’s appointment was the first time an independent adviser had been hired to co-ordinate a loan, according to bankers. The rejection stung, especially as some lenders offered to fully underwrite the facility while others offered to co-ordinate for free. 

And the banks attempting to court Polkomtel were no bit-part players. The Polish branches of BNP Paribas, Commerzbank, DNB Bank, HSBC, ING, Millennium Investment Banking, Nordea, PKO, PZU, RBI, RBS, Santander, Société Générale and UniCredit were mandated lead arrangers on the deal, according to Dealogic.  

 “If a bank had been co-ordinator, we would not have had the flexibility with the banks that we wanted,” says Joanna Nieckarz, board member and chief financial officer of Polkomtel. “We also did not want any bank to be privileged compared to the rest.” 

The conditions were perfect for an adviser to step into a co-ordinating role instead of a bank, according to Nieckarz. The deal was for refinancing, rather than new money, and the responses to the request for proposals had already indicated that bank commitments would see the loan oversubscribed before Polkomtel picked Trigon to co-ordinate.  

“It was a bit of a surprise that Polish banks could provide so much money,” says Nieckarz. 

Cheaply does it

But banks did not only have to stomach losing out on a co-ordinator spot to an adviser. Polkomtel made no secret that it wanted to refinance its existing loan cheaply — the RFP sent out in March spelled out clearly to lenders that the firm thought it should be paying less for borrowed money. 

“Our key focus point was a better price than the deal being refinanced,” says Nieckarz.

Polkomtel pushed for this slash in margins by using the most powerful weapon in the arsenal of anyone that wants to test the commitment of a potential suitor — jealousy.

“We used the possibility of issuing bonds as leverage against the banks to show them that we had an alternative option for refinancing,” says Nieckarz. “We were very committed to both the bond and the loan with absolute focus going into both alternatives, so the banks knew that if they could not provide funds at a lower cost, then we would go to the bond market.”

Lenders, desperate not to lose out on a deal in the midst of a market that looks set to match the record low loan volumes of 2012, cut the costs of lending to win Polkomtel’s favour. 

The multi-tranche loan that was signed in June was split between a Z2.65bn 4.5 year tranche that pays a margin of 225bp and fees of 60bp, a Z3.3bn five year tranche paying 275bp with 70bp fees, a Z1.7bn six year piece paying 325bp and 80bp fees and a 4.5 year undrawn revolving credit facility for Z300m that pays 225bp and 60bp. 

The deal that was replaced had margins ranging from 375bp to 450bp, depending on the tranche. 

This success means that an independent adviser could find itself co-ordinating loans for Polkomtel in the future. “I would use an adviser as co-ordinator again,” says Nieckarz. “Provided we have the same financial situation and the loan market is comparable, such as in this case where there was extra liquidity in the domestic market.”

Two year cycle

Polkomtel’s next trip to the capital markets will be to refinance its $230m PIK notes in February next year when the non-call period expires. And the firm has $1.4bn-equivalent of dollar and euro high yield 2020s that can be refinanced at a lower premium in 2016.

“We have a capital and debt structure where something definitely happens every two or three years,” says Nieckarz. 

The dollar and euro denominations of the PIK and high yield notes run against Polkomtel’s financing strategy. The firm likes its credit to be in zloty.

Loan bankers do not have to worry about jostling with advisers for Polkomtel’s affections anytime soon; the PIK will not be refinanced with a loan.  But that doesn’t mean the surprises are necessarily over for lenders.

“Polkomtel is a blue chip that is well perceived by the investors, therefore we can allow ourselves a non-standard approach to these kinds of exercises,” says Nieckarz.  Potential suitors, take note.  

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