The Nasdaq unveiled a $5.877bn (£3.047bn) loan package yesterday to fund its £2.7bn bid for the London Stock Exchange.
News of the borrowing will spark fresh concern in the City over the level of debt that the US exchange is using to fund its hostile takeover offer. The package features two seven-year "term" loans of $750m and $2.5bn, a $1.75bn bridging loan and a $775m preference share issue. They will be combined with a $102m credit line to pay for the 71 per cent of the LSE it does not already own and refinance the two companies' existing debt.
The two "term loans" carry an average interest rate of 7.75 per cent. Nasdaq needs $3.85bn - or £2bn - to pay for the shares at its £12.43 a share offer price.
A further $745bn is required to refinance the London exchange's debt, with the remaining $1.3bn required to deal with the Nasdaq's existing debt pile. Sources said the package showed how little room the Nasdaq had to increase its offer.
Nasdaq is currently on negative credit watch amid concerns over the deal. Standard & Poor's currently rates Nasdaq's debt at BB+ - giving it "junk" status.
The loans are with Dresdner Bank and Bank of America. They are also taking the preference shares, which will be swapped for regular shares if the deal completes. The bridging loan will be swapped for loan notes with an eight-year maturity.
Yesterday Goldman Sachs raised fresh concern over the credit quality of non investment grade debt. Default levels are currently at historic lows in the US and Europe, but the broker warned this is unlikely to last, a view shared by S&P.
Looking at Europe, the broker warned: "If the business cycle turns, as we expect, the balance sheets of speculative (non investment grade) firms will be put under increasing pressure."
Shares in the London exchange yesterday eased 10p from last week's all-time highs at £13.11.Reuse content