LONDON (Reuters) - Commodities trader Glencore (GLEN.L) signed a $6 billion syndicated loan backing its $90 billion merger with miner Xstrata XTA.L on Tuesday after raising nearly $11 billion in syndication, banking sources said on Wednesday.
The loan includes a one-year extension option and was underwritten by Citigroup and Morgan Stanley to show regulators that Glencore has enough working capital to fund the merger.
The loan, which can only be drawn if the merger goes ahead, is new money for Glencore and additional exposure for its lenders, although Glencore is not expected to draw on the loan.
“The facility is available to be drawn to the extent that the merger gets approval. Whether it is or not is another matter,” a senior banker close to the deal said.
Glencore could not immediately be reached for comment.
Banks are eager to forge a closer relationship with market-leader Glencore to maintain access to its ancillary business and 31 banks of the 35 banks invited joined the deal.
Each bank had to seek exceptional credit approval to commit $350 million due to significant existing exposure to Glencore and Xstrata, but banks’ commitments were cut back to only $100 million.
Lenders were scaled back to $200 million by the loan oversubscription and then to $100 million after Glencore decided to use the proceeds of a bond issue to reduce the loan further.
Glencore is also extending $11.85 billion of existing loans in a process which is expected to close around April 26th or 27th, bankers said.
The company is extending two existing loans - an $8.34 billion three-year loan by a further year and a $3.53 bln 364-day loan by one year.
Xstrata also asked its banks for a waiver to allow $6 billion of its loans to stay in place as it waits for approval of its merger with Glencore.
The short tenor of Glencore’s $6 billion loan and pricing which increases over time, suggests that the combined company will seek to consolidate its finances when the merger is complete, bankers said.
Reporting by Tessa Walsh; Editing by Jon Loades-Carter