Apollo Turns to banks to fund most of the $3bn equity commitment in Brightspeed Buyout [buyout/ takeover]

Over half of $3bn equity commitment comes via bank loan, while backleverage financing aims to boost return on investment

Over 60% of the $3bn equity commitment that Apollo has agreed to pay to acquire telecom and broadband assets from Lumen Technologies, which will be run under the Brightspeed brand, will come from a five-year loan provided by banks.

The $1.9bn loan is separate from the $6.3bn of debt that Apollo also plans to use to finance the acquisition, part of which bank underwriters are now trying to sell to investors.

The loan is issued by a holding company that benefits from no guarantees or security from Brightspeed’s operating assets. And it is Apollo, rather than Brightspeed, that’s expected to pay the principal and interest, according to reports from credit-rating firms.

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Relying on borrowed funds rather than drawing the entire $3bn from its investors will allow Apollo to provide Brightspeed with much-needed cash to upgrade its network to fiber optic cable while limiting the negative effect that such a large outlay would have on the fund’s internal rate of return, a closely watched measure of performance for private equity investments.

Brightspeed is expected to have nearly $1.5bn of cash at closing, according to the deal documents.

In addition to the $3bn contribution from Apollo, the $6.3bn of debt that will be layered onto Brightspeed’s balance sheet includes a $1bn term loan that banks will keep on their books, $3.9bn of new loans and bonds that are being syndicated to investors, and $1.4bn of existing notes that will remain in place.

Apollo has the option to service the five-year loan in kind, which involves paying interest in additional principal, the debt documents show. The private equity firm can voluntarily repay the loan at a premium during the first year, and with no premium or penalty thereafter.

Source: Bloomberg