MF Global expects to borrow less under proposed $450 million unsecured term loan

By Sara Rosenberg

New York, June 20 - MF Global Ltd. expects to reduce the amount it will need to borrow under its proposed $450 million two-year unsecured term loan as a result of completing a $150 million 9% convertible senior notes offering, according to a news release.

Proceeds from the term loan, the convertibles, $150 million of 9.75% series B non-cumulative convertible preference shares, and cash on hand will be used to repay the company's outstanding bridge loan due in December.

The convertible preference shares and convertible notes are scheduled to close on June 25.

As previously announced, J.C. Flowers & Co. LLC had entered into a backstop commitment with the company to purchase up to $300 million of a separate series of convertible preference shares, with the actual amount purchased to be reduced by subsequent equity offerings. As a result of the offering of the preference shares, J.C. Flowers will now purchase $150 million of the separate series of convertible preference shares.

The term loan and the J.C. Flowers financing are expected to close by late July, subject to various conditions and contingencies.

Pricing on the term loan will range from Libor plus 400 basis points to 500 bps depending on the company's credit rating. The spread will increase by 100 bps on the first anniversary of the closing date and by 200 bps on all overdue amounts.

The loan commitment letter permits certain increases in pricing or changes in other terms and conditions as may be required for completion of a successful syndication.

The commitment letter also includes a securities demand feature that allows the loan arrangers to require the company to publicly or privately issue debt or convertible securities if, after July 31, the issuance is necessary for satisfactory syndication.

Any securities demand will provide for an "all in" yield to maturity, in the case of debt securities, not to exceed the greater of 11% per annum and the Treasury rate plus 700 bps and, in the case of convertible securities, not to exceed the greater of 7% and the Treasury rate plus 300 bps. In each case the maturity date cannot be less than two years or more than five years from the issue date. In addition, any securities issue cannot be less than $100 million and may be rounded up to the nearest $100 million as necessary.

Financial covenants under the term loan include minimum net worth, a maximum leverage ratio, a minimum interest coverage ratio, a maximum ratio of total debt to capitalization and a minimum ratio of net cash capital to net liquid assets.

With the refinancing transactions, the company expects to have outstanding long-tem borrowings of $950 million, which will allow it to have $1 billion in available committed liquidity under its existing liquidity facility.

MF Global is a Hamilton, Bermuda-based broker of exchange-listed futures and options.

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