NEW YORK, May 12 (LPC) – A US$1.1bn leveraged loan partially supporting the Carlyle Group and Singaporean sovereign wealth fund GIC Pte Ltd’s purchase of a 20% stake in American Express Global Business Travel (Amex GBT) has been called into question as the investors look to walk away from the transaction.
Carlyle and GIC are citing a Material Adverse Effect (MAE) to exit the investment. They argue an MAE has occurred as the limited demand for Amex’s travel services arm has deteriorated the company’s value and prospects.
Amex GBT launched the US$1.1bn term loan in February, according to two sources familiar with the financing. The purchase was expected to close on May 7.
In mergers and acquisitions, documentation includes language about MAEs that highlight a change in circumstances or an “act of God” that significantly reduces the value of a company. MAEs are difficult to succesfully invoke. While the coronavirus has hurt revenues of various businesses, to grant an exit, the investors must argue that the adverse effect has impacted Amex GBT at a greater level than its industry peers.
The investors argue that the MAE clause in the purchase agreement with Amex GBT didn’t include carve-out language about a potential pandemic, and are citing this as a reason to terminate their investment, according to another two sources. They also argue that the proceeds of the US$1.1bn loan were revised by Amex GBT to be used for “emergency” funding rather than for a debt recapitalization, according to the second pair of sources.
The proceeds were limited to funding a potential acquisition and a shareholder dividend, the second pair of sources said. The investors argue that a change to the loan’s proceeds without their consent is a violation of the purchase agreement.
On May 6, Juweel Investors Limited, the sellers, filed a lawsuit with a Delaware court. It asked the court to review the case on an expedited basis to close the purchase before June 30, the first two sources said. The sellers claim the purchase agreement included language accounting for a “global event,” and is confident that the credit agreement is favorable to its lenders, the first pair of sources said.
Amex GBT’s seven-year loan comprises a US$615m funded tranche and a US$515m delayed-draw term loan (DDTL). The funded portion will repay a US$249m existing loan, pay a US$55m shareholder distribution, and set aside US$135m for future operating needs, according to an Amex GBT lender presentation from April 16.
Initially, proceeds from the US$615m tranche were to pay a US$484m shareholder dividend, refinance the existing loan and support the acquisition of corporate travel assets, according to a February 11 report from Moody’s Investors Service. The use of proceeds was revised to account for the market disruption caused by the pandemic and appease lenders that may have been uncomfortable with a larger dividend, a source familiar with the company said.
Credit Suisse, the lead arranger of the term loan, is still prepared to provide the debt under the purchase agreement should the transaction close, according to a court document viewed by Refinitiv LPC. In an email sent on May 4, Credit Suisse said it was not aware of any lender that did not intend to fund its allocated portion of the syndicated loan, according to the court document.
A spokesperson for Credit Suisse declined to comment.
Several media outlets first reported on May 9, the news of Carlyle and GIC’s decision to withdraw its investment in Amex GBT.
A spokesperson for GIC did not respond to a request to comment.
Amex GBT raised the US$1.1bn from the syndicated loan market as fears of a pandemic grew, and investors became wary of lending to a company exposed to weak demand for travel.
Amex GBT increased the margin of the loan and included lender-friendly ticking fees on the DDTL, Refinitiv LPC reported on February 27. The travel company has been paying investors ticking fees from day one of the loan agreement at 100% of the margin of the loan plus Libor.
The seven-year loan pays a margin of 400bp over Libor with no floor on the benchmark versus an initial pitch of 350bp. The original issue discount finalized at 98 cents on the dollar, banking sources said at the time.
Given the difficulty in calling an MAE, investors are confident the loan will continue to trade in the secondary market. The loan was quoted at 87-90 cents on Monday, according to a source.
“It’s hard to see this being an MAE because normally acts of God are carved out,” said one investor. “It’s going to depend on the audience and how sympathetic they are.”
Typically, loans supporting M&A are withdrawn from the market if a deal is canceled, the same investor said. Given that Amex GBT’s loan is also refinancing an existing loan and paying a dividend, it is hard to predict what will happen if Carlyle and GIC are successful in exiting the investment.
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