As JPMorgan Chase & Co. kicked off investor discussions this week over the $20 billion financing for Electronic Arts Inc., nervousness around a protracted war in the Middle East cast a shadow over the largest ever debt sale for a leveraged buyout.
But within days, oil prices had eased and stocks recovered losses as President Donald Trump said the war with Iran was almost done.
That’s giving bankers the confidence to say the deal backing the video-game maker’s acquisition by a private equity consortium will launch as soon as Monday, according to people with knowledge of the matter. Even as market participants worry about further volatility causing delays, the EA financing remains on track, the people said Wednesday, asking not to be identified as the timing is confidential.
Representatives for EA and JPMorgan declined to comment.
The Wall Street lender is leading underwriters working to syndicate most of a $20 billion debt package to institutional investors. Silver Lake Management, Saudi Arabia’s Public Investment Fund and Affinity Partners agreed to buy the company in September in a deal valuing it at about $55 billion.
Pricing
The exact structure of the financing is a work in progress, with JPMorgan already leaning toward selling more junk bonds than initially planned. The deal also includes leveraged loans.
While early discussions over pricing are largely in line with where new deals have been offered to investors recently, there’s an expectation that a transaction this big will likely include a premium to entice buyers.
Secured bonds in the deal — expected to be about $6.5 billion in total — could offer a yield in the low 7% range, the people familiar said. That compares with roughly 6.9% yields on offer in the junk-bond market on Wednesday, according to data compiled by Bloomberg. EA’s euro-denominated bonds could price even tighter, the people said.
About $2.5 billion in riskier unsecured debt is expected to be offered with a yield in the mid-8% range, while loans could offer 3.5 to 3.75 percentage points over the benchmark, with a discount of 98.5 to 99 cents on the dollar.
Newly-issued leveraged loans are paying on average about 3.6 percentage points over the US benchmark and a discount of roughly 98 cents, according to data compiled by Bloomberg.
Investors are closely watching the progress of the debt sale as it could set the tone for the more than $100 billion in M&A financings expected to the hit the market in the coming months.
When JPMorgan singlehandedly underwrote the $20 billion debt package, credit spreads were at their tightest levels since 2021. While it brought other banks on board to share the risk, it also baked in pricing protection, known as “flex” to offset worsening conditions. That flex is expected to be more generous than the 125 basis points typically agreed in most buyout deals, people said.
Another measure in the financing allowed for an increase in the spread on offer, providing comfort that banks will be able to offload the debt within agreed-upon levels, the people familiar said.
These guardrails may come in handy after weeks of unease in credit markets, sparked partly by concerns over borrowers in the software industry whose businesses are threatened by artificial intelligence.
Benchmark
Roughly 14% of debt trading in the US leveraged loan market is exposed to software and technology, according to analysts at Bank of America Corp., and pain in the sector has brought down prices throughout the market.
While some new deals have been met with skepticism among buyers, investors are still eager to get a slice of new money at a time when much of the primary market is refinancing existing bonds and loans.
“These deals are benchmark sizes,” said Michael Levitin, a portfolio manager at MidOcean Partners. “If you run institutional investor money, playing in these new issues is mandatory, otherwise you’re threatening to get out of weight in your index.”
If all goes to plan in the next couple of weeks, JPMorgan and its peers will enjoy the spoils of some $500 million in fees for underwriting the EA deal. If the sale goes awry, the lenders could be — temporarily — stuck with the largest-ever LBO in history, leaving them exposed to ample risk in a volatile market.
This article was generated from an automated news agency feed without modifications to text.
