Building a $12 billion bridge

It's a $12 billion one-off.

The first jumbo financing of the year, RWE AG's €9 billion ($11.7 billion) January bridge loan to back its offer for Dutch utility Essent NV, says more about RWE and its sector than about the general availability of financing. In other words, credit is still pretty tight for most players, banking sources say.

German energy giant RWE is a formidable, A-rated corporation, with which banks want to maintain a relationship. It also operates in a relatively safe sector. Still, says Stephen Kensell, global co-managing partner of the banking practice at law firm Allen & Overy LLP, which acted for the lead managers, "This transaction shows that, despite the most challenging conditions since the 1930s, it remains possible to access significant financing in the bank market. This is an encouraging sign."

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Essen-based RWE isn't getting the kind of three-year deal it could have expected in pre-credit crunch days. The financing relied on "pre-syndication" or bookbuilding, and no underwriting was involved. The loan, which has a one-year maturity, is structured and priced steeply so as to induce RWE to refinance the deal quickly in the bond markets. It carries a margin of 150 basis points over Euribor and steps up 50 basis points every six months.

RWE has already said it will refinance the loan this year and next by increasing its debt issuance program from €20 billion to €30 billion. This close linkage with bond issuance is also underlined by reports that RWE's lenders have been told to expect follow-up business in the form of bond mandates. Given that such tough terms were imposed on a company of RWE's stature, bankers doubt that a deal such as the $45 billion loan for Belgian brewer InBev SA in July would be possible now.

A syndicate of 10 banks took part in the RWE loan, including Barclays plc division Barclays Capital, BNP Paribas SA, Calyon SA and J.P. Morgan Chase & Co. Their willingness to lend reflects confidence in the corporate bond market.