BCE has announced:
the company has received a preliminary view from KPMG that, based on current market conditions, its analysis to date and the amount of indebtedness involved in the LBO financing, it does not expect to be in a position to deliver on the scheduled effective date of BCE’s privatization, December 11,2008, an opinion that BCE would meet the solvency tests as defined in the definitive agreement, as amended. The receipt at the effective time of a positive solvency opinion is a condition to the closing of the transaction. At the same time, KPMG indicated that BCE would meet all solvency tests under its current capital structure.
“BCE today enjoys solid investment grade credit ratings, has $2.8 billion of cash on hand, a low level of mid-term debt maturities, and continues to deliver solid operating results,” said George Cope, President and CEO of BCE and Bell.
“We are disappointed with KPMG’s preliminary view of post-transaction solvency, which is based on numerous assumptions and methodologies that we are currently reviewing. The company disagrees that the addition of the LBO debt would result in BCE not meeting the technical solvency definition,” said Siim Vanaselja, BCE’s Chief Financial Officer. The company continues to work with KPMG and the Purchaser to seek to satisfy all closing conditions. Should KPMG be unable to deliver a favourable opinion on December 11, 2008, however, the transaction is unlikely to proceed.
That gust of wind you just felt was a sigh of relief from the purchasers and financers. Bloomberg notes:
“The chances of any deal getting done are very low now,” said Sachin Shah, a merger arbitrage analyst with ICAP Corporates LLC in Jersey City, New Jersey. “Having BCE’s auditor call the deal insolvent is what’s surprising here. The market had been expecting that the banks would balk.”
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Citigroup Inc., Deutsche Bank AG, Toronto-Dominion Bank and Royal Bank of Scotland Group Plc are on the hook for about $34 billion for BCE, according to regulatory filings. The banks have sold debt that backed buyouts at discounts to face value to get the debt off their books. In the case of BCE, it would cost billions of dollars.
The average high-yield, high-risk loan is trading at about 66.6 cents on the dollar, just shy of the record, according to Standard & Poor’s LCD. Prices have plummeted almost 9 cents since Nov. 6 and 28.3 cents this year as investors in the debt have been forced to liquidate funds.
Preferred shares have plunged on light volume. I have uploaded a noon evaluation of the FixedFloater index which, unfortunately, could be more accurately referred to as the BCE index.
BCE has the following preferred shares outstanding: BCE.PR.A, BCE.PR.C, BCE.PR.D, BCE.PR.E, BCE.PR.F, BCE.PR.G, BCE.PR.H, BCE.PR.I, BCE.PR.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y & BCE.PR.Z
The last dedicated post in this series was BCE / Teachers’ : A Giant Step Closer.
Update:DBRS has announced:
has today placed its ratings of BCE Acquisition Inc. (BAI), BCE Inc. and Bell Canada, a wholly owned subsidiary of BCE Inc. (BCE or the Company) Under Review with Developing Implications. This action follows BCE’s announcement today that based on preliminary indications it is unlikely that a condition – specifically, a positive solvency opinion – that was required upon closing the privatization of BCE on December 11, 2008, will be met.
DBRS notes that should the privatization not proceed as planned, DBRS expects to re-evaluate BCE and Bell Canada’s credit profiles and likely move the ratings of these entities to a strong investment-grade level.
Alternatively, should the privatization proceed as planned, DBRS’s current BB (low) issuer ratings on BAI and Bell Canada would remain in place. (See press release dated October 7, 2008.) However, should any element of the privatization change, DBRS would re-evaluate the appropriateness of these BB (low) issuer ratings.
DBRS notes that the $52 billion privatization of BCE was originally announced on June 30, 2007, and led by Ontario Teachers’ Pension Plan Board, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC. Subsequently, Merrill Lynch took up an equity commitment as a principal investor. Collectively, as part of the agreement, as amended, the sponsors will invest approximately $7.75 billion in equity (possibly lower due to cash accumulation at BCE) to fund this privatization, with the remainder in debt.
Update: The agreement is available as a “Material Document” in the BCE filings on SEDAR, dated July 5, 2007.
“Solvent” when used with respect to the Company, means that, as of any date of determination (a) the amount of the “fair saleable value” of the assets of the Company will, as of such date, exceed (i) the value of all “liabilities of the Company, including contingent and other liabilities,” as of such date, as such quoted terms are generally determined in accordance with Applicable Laws governing determinations of the insolvency of debtors, and (ii) the amount that will be required to pay the probable liabilities of the Company on its existing debts (including contingent and other liabilities) as such debts become absolute and mature, (b) the Company will not have, as of such date, an unreasonably small amount of capital for the operation of the businesses and
transactions in which it intends to engage or proposes to be engaged following the Effective Date, (c) the Company will be able to meet its obligations as they generally become due and to pay its liabilities, including contingent and other liabilities, as they mature, and (d) the aggregate of the property of the Company is, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would be sufficient, to enable payment of all its obligations, due and accruing due. For purposes of this definition, “not have an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged” and “able to pay its liabilities, including contingent and other liabilities, as they mature” means that the Company will be able to generate enough cash from operations, asset dispositions or refinancing, or a combination thereof, to meet its obligations as they become due;
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[Section 8.1 “Mutual Conditions Precedent”, (f), emphasis added] the Purchaser and the Company shall have received an opinion at the Effective Time from a nationally recognized valuation firm engaged by the Purchaser and agreed to by the Company, acting reasonably to the effect that the Company will, subject to certain qualifications, be Solvent as of the Effective Time and immediately after the consummation of the transactions contemplated by the Plan of Arrangement.
