UTAC deal will bring tears to bankers' eyes(2)

Affinity Equity Partners and TPG Capital have won shareholder approval for the buyout of Singapore-listed United Testing and Assembly Centre with a covenant-lite loan likely to cause bankers pain.

Affinity Equity Partners and TPG Capital have won backing from 99 percent of shareholders to press on with a S$2.2 billion ($1.5 billion; €1.06 billion) buyout of Singapore-listed chip tester United Testing and Assembly Centre.

Last week’s vote will dismay bankers who had offered a covenant-lite loan structure unprecedented in the region before the subprime crisis hit financing, said a source familiar with the deal.

“Bankers who have been hoping for the deal to collapse must be crying,” the source said. JP Morgan Chase, Merrill Lynch and ABN Amro are arranging the $1.1 billion covenant-lite financing structure comprising $600 million of senior debt and $500 million of high-yield bonds.

The loan structure has been described as problematic for the lenders in wake of tighter credit but “the banks are legally committed to deliver the covenant-lite loan,” said a source familiar with the financing deal.

Under Singapore’s securities regulations, a financial advisor, in this case ABN AMRO, is required to guarantee debt and equity financing is in place for a takeover to proceed.

He added that the banks have not gone out to syndicate the loan and will likely have to price it at a slight discount to ensure syndication. But he added “liquidity is coming back.”