Barclays lends BlackRock an inexpensive hand

Securing cheap debt from Barclays plc helped BlackRock Inc. make the numbers work in its proposed $13.5 billion acquisition of Barclays Global Investors, announced June 11.

According to a source familiar with the deal, Barclays is offering BlackRock about $1.2 billion of short-term bridge financing at extremely attractive terms. "If [BlackRock CEO Larry Fink] had to raise the money from other banks, it would have cost a lot more money," says the source, who adds that rates offered the money manager were "consistent with traditional revolver -- not bridge loan -- terms."

The source adds that BlackRock's initial bid for BGI was submitted over the Memorial Day weekend, but it took almost a month to hammer out details.

Specifics of the debt's pricing could not be learned, though one debt-capital-markets banker says revolving credit lines in a non-credit-crisis environment would probably run in the range of LIBOR plus 50 to 100 basis points. That would put the price of Barclays' bridge to BlackRock at between 1.15% to 1.65%, assuming current three-month LIBOR rates of around 0.65%. Most bridge loans today are being priced closer to LIBOR plus 350 basis points (an effective rate of 4.15%), with as much as 1.75% to 2% of the bridge's value paid up front.

The source close to the deal says Barclays was willing to ante up the money because it was a motivated seller. The British bank had to raise capital to reassure U.K. banking regulators and avert government intervention. Additional financing to round out the $2 billion bridge loan is coming from Citigroup Inc., which is offering $500 million, and Credit Suisse Group, $300 million.

Those banks were lead advisers to BlackRock, with Citi's Sean Ewing, Chad Holm, Dave Macgowan, Richard Schwartz, Gary Shedlin and Amy Silver leading the team. Shedlin has been a longtime adviser to Fink and worked on BlackRock's sale of a controlling stake to PNC Financial Services Group Inc. in 1994. That stake is down to about 24%.

Shedlin was at Lazard at the time of that deal but brought the BlackRock relationship with him when he joined Citi in 2004. BlackRock tapped Citi in 2007, when it bought Merrill Lynch Investment Managers, and again when the firm acquired fund-of-funds manager Quellos Group LLC.

Credit Suisse's team consisted of Joseph Hershberger and David DeNunzio. Hershberger specializes in advising money managers. He joined the bank from Putnam Lovell NBF Securities Inc. in January 2007 before Jefferies & Co. bought that boutique.

BlackRock used a raft of other advisers on the transactions, giving assignments to Morgan Stanley's Ruth Porat and Terrence Sullivan; Perella Weinberg Partners LLP's Gary Barancik, Arjay Jensen, Terry Meguid, Amr Nosseir and Peter Weinberg.

For legal work, BlackRock used a Skadden, Arps, Slate, Meagher & Flom LLP team of Richard Prins, Sean Doyle, Franklin Gittes and Barnet Phillips.

Barclays turned to in-house banker Brad Whitman, as well as a team from Lazard consisting of Jon Hack, Nicholas Miller and Jeffrey Rosen.

Barclays' legal advisers included Clifford Chance LLP's Guy Norman, Alison Price and Patrick Sarch. The bank also used Sullivan & Cromwell LLP. Alison Ressler and Eric Krautheimer led that firm's team, which included chairman H. Rodgin Cohen, Donald Crawshaw, Ronald Creamer Jr., John Evangelakos, Neal McKnight and Frederick Wertheim. -- Vipal Monga