Metavante Corp., Marshall & Ilsley Corp.'s technology unit, will have less capital to fund acquisitions once it completes its spinoff from its Milwaukee parent this quarter because one of its credit lines was reduced this week.
"Due to credit market conditions, the banks asked us to consider changes to the terms, which we thought were appropriate," Gregory Smith, M&I's chief financial officer, said Thursday.
After being approached by its lenders this week, Metavante agreed to reduce to $350 million, from $500 million, a secondary credit line Mr. Smith said it had planned to use to fund deals. The company would still have access to a $1.75 billion term loan and a $250 million revolving credit line as outlined in the original financing pact, he said.
The amended loan agreement also raises the interest rates and fees that M&I and Metavante would pay to the lenders, including units of JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Morgan Stanley, and Baird Financial Corp.
Though the loans would have higher rates, Mr. Smith said they are "no worse than the flex terms" embedded in the original agreement.
As part of the agreement the fee on the unused portion of the $250 million revolving credit facility was raised by 12.5 basis points, to 0.5%, according to M&I's filing Wednesday with the Securities and Exchange Commission, where it disclosed the new terms. The fees for the lenders' underwriting, financial advisory, arrangement, and closing services also rose, to $40 million, with M&I paying about half of these fees and Metavante the rest. JPMorgan Chase was set to receive about $14 million. These fees had been $22.5 million, and Metavante was to have paid them all.
Mr. Smith said he expects the new terms to have a "nominal" impact on Metavante, which should still have access to other forms of debt and equity financing as an independent company. For one, it would have more flexibility to borrow under the term loan, after the lenders reduced its consolidated coverage ratios, he said.
He also said that the changes would reduce M&I's expected benefit of $1.67 billion "by less than 1%."
Mr. Smith said in an American Banker interview last month that funds from the spinoff would let M&I rethink the pace of its start-up strategy and repurchase more stock. At the time, he said the company had no plan to accelerate the pace of acquisitions or change the size of companies it targets.
In its SEC filing M&I urged shareholders to support the spinoff at a special meeting scheduled for Oct. 25. On Thursday, Mr. Smith said that the spinoff remains on track to close this quarter.
At no time was the deal in jeopardy, he said; the parties agreed to the new terms to get the deal done quickly.
"There's a large supply of debt that's going to be coming to market associated with a variety of transactions over the course of the summer," he said. "There just aren't as many buyers out there today. We wanted to get the transaction done on an appropriate timetable."
M&I announced the spinoff in April, agreeing to sell a 25% stake in Metavante to the private-equity company Warburg Pincus LLC for $625 million and to issue the rest of the shares to M&I shareholders. The term loan would be used to repay certain intercompany indebtedness plus accrued and unpaid interest owed to M&I by Metavante. The amount owed was $982 million when M&I filed a document with the SEC on Sept. 20. Another $750 million from that loan will be used by Metavante to pay M&I a $750 million dividend.
Since M&I announced the spinoff, investor demand for debt has shrunk significantly, casting doubt on several deals involving private-equity buyouts. This month, the Little Rock information services company Acxiom Corp. said that its prospective buyers had backed out of a $2.25 billion deal to take it private. Other financial service deals are in jeopardy — including the proposed buyout of SLM Corp., the Washington student lender better known as Sallie Mae, and the sale of a minority stake in Fremont General Corp., a Santa Monica, Calif., mortgage lender — as the participants bicker over the deals' terms.
"The good news is that this deal is still getting done," said Robert Patten, an analyst at Regions Financial Corp.'s Morgan Keegan & Co. Inc., Thursday.
