September 11, 2014 / 7:59 PM / 4 years ago

UPDATE 1-TRLPC: Burger King markets $7.25B loan package for Tim Hortons buy

(Adds background, market commentary)

By Jonathan Schwarzberg

NEW YORK, Sept 11 (Reuters) - Burger King Worldwide Inc is lining up a $7.25 billion loan package to finance its $11.5 billion acquisition of Canadian quick service restaurant chain Tim Hortons, sources told Thomson Reuters LPC.

The loan package, which includes a $6.75 billion, seven-year term loan B and a $500 million, five-year revolver, will launch to investors on Monday, well ahead of the likely closing of the acquisition.

Burger King is backed by private equity firm 3G Capital, which is its majority shareholder owning 70 percent of the restaurant chain.

Conglomerate Berkshire Hathaway is also providing $3 billion of preferred equity financing for the transaction.

The way this deal is being done is starting to bear some resemblance to another transaction that 3G Capital was involved in last year.

3G partnered up with Berkshire Hathaway to purchase H.J. Heinz Co for about $23 billion in a deal that also saw Berkshire contributing preferred equity.

The Heinz deal was announced on February 14. The loan package backing the transaction was offered to investors on March 13. The acquisition finally closed in June.

Because this deal is so complex and will require multiple regulatory approvals from government organizations in both the United States and Canada, it is expected to take a while to go through.

When it comes to acquisition transactions, financial sponsors usually do not like to lock in financing before having more visibility on whether the transactions will receive regulatory approval. But, in this case, the financial sponsors decided the timing was right based on market conditions, a source following the deal said.

“They’d rather lock in the financing now and not have to worry about what market conditions are going to look like down the road,” the source said.

In August, a handful of acquisition and refinancing credit facilities were withdrawn from the market amid deteriorating conditions. However, the market shouldn’t have any problem digesting a deal of this size, according to the source, especially when looking at a company generating the massive amount of Ebitda that Burger King does.

During the quarter ending June 30, Burger King generated $182.8 million of adjusted Ebitda, according to regulatory filings. During 2013, adjusted Ebitda was $665.6 million.

Wrapping up the financing for a deal this size makes a lot of sense, said Steven Rutkovsky, a partner who specializes in debt financing at Ropes & Gray LLP.

“People are looking at a lot of paper in the pipeline, and the secondary market has been a little weak,” Rutkovsky said. “It may be an effort to get out in front of some of the deals in the pipeline.”

He said that the uncertainty of the market gives an impetus to issuers to get things done as quickly as possible, especially for big deals.

“Given the size of the deal, there’s greater risk that the banks could have difficulty pushing out this paper,” Rutkovsky said.

Price guidance is being circulated at LIB+350 with a 1 percent Libor floor and an original issue discount (OID) in the 99-99.5 range.

The term loan will include six months of prepayment premium at 101.

Burger King announced on August 26 that it was buying Tim Hortons. The company said at the time it had $12.5 billion of financing commitments.

The commitments included a $9.5 billion package from JP Morgan and Wells Fargo and $3 billion of preferred equity financing from Berkshire Hathaway, which will not be involved in the management of the company.

In addition to the loan package, Burger King said it plans to sell $2.25 billion of second-lien secured notes to back the deal.

Pro forma the acquisition 3G is expected to own 51 percent of the combined company.

Burger King did not return immediate calls for comment. (Editing By Jon Methven)

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