Access Industries plans to finance its planned $3.3 billion acquisition of the Warner Music Group by putting up $1.118 billion in equity, obtaining $1.045 billion in bridge loans from Credit Suisse AG and UBS Loan Finance. It will ask the senior secured bond holders to waive the change-of-control provision so it doesn't have to refinance that $1.065 billion in debt at the closing of the deal, according to the WMG proxy statement filed with the SEC on Friday.
The bridge financing would be in the form of an $845 million senior unsecured bridge loan and a $200 million unsecured bridge facility. Those lenders are also providing a $60 million senior secured revolving credit facility. The bridge financing will be used to redeem three unsecured debentures issued by the company while under control of the private equity firms; the $465 million in 7.375% senior subordinated notes; 100 million pounds ($164 million as of the May 6 signing of the deal) in 8.125% sterling denominated senior subordinated notes; and $258 million in 9.5 senior discount notes. Those notes, all due in 2014, add up to $887 million.
In asking the $1.065 billion in senior secured note holders to waive the change in control provision, Access Industry is, in effect, asking the holders to remain bondholders under the new owner; and allow the acquisition to be completed without having to redeem those bonds too, like it is doing for the unsecured bondholders. If the secured bondholders don't grant that waiver, then Access industries would have to buy them out in order for the deal to close.
After the deal closes, Access Industries will then turn to the "private placement" debt market to replace the bridge loans, and do whatever other long-term financing it needs to do to insure that WMG is on sound footing, according to the proxy statement. That will be an important step, as evidenced by what happened to EMI after Terra Firma bought the company. When the economy hit hard times in early 2008, Terra Firm was stuck with its high-cost bridge financing with tightening covenants, which eventually strangled Terra Firma's equity in the company, resulting in the loss of ownership to Citigroup.
The proxy statement reported that when the deal closes, WMG chairman and CEO Edgar Bronfman Jr. will have almost of $17 million in share options redeemed. About 4.35 million of those shares are counted in the 12.4 million shares that are cited as controlled by Bronfman, which means that as a result of the deal, Bronfman will get an additional $67 million from 8.05 million shares priced at $8.25.
Meanwhile, WMG vice chairman Lyor Cohen will receive about $10 million in redeemed share options and vested stock. That stock accounts for about 1.9 million of the 3.7 million shares Cohen controls, which means that he will also receive another $15 million from the remaining 1.8 million in shares.
Also in the proxy statement is the condition that the deal has to be closed with both regulatory and shareholder approval by November 7, or the commitment to acquire the company expires.