Japanese telecommunications and internet conglomerate Softbank could next month launch the country's largest ever securitization. According to reports, Softbank plans to raise 1.45 trillion ($12.3 billion) through a whole business securitization of its mobile phone subsidiary Vodafone Japan KK.
The deal would refinance 1.3 trillion of bridge loans, extended in April by 17 financial institutions to Softbank to part fund its 1.8 trillion acquisition of Vodafone KK from the U.K.'s Vodafone Group.
Market whispers suggest Softbank has appointed Citigroup, Deutsche Bank and Mizuho Corporate Bank as lead managers on the transaction, with structural details currently being finalized for a mid-October launch. According to sources, the arrangers are also likely to be major investors in the transaction.
The three banks were among those to extend the one-year initial bridge loans. Coupons on those loans are set to rise from 250 basis points over Japanese Government Securities to 300 points in October and 350 in January. Consequently, Softbank and the arrangers view ABS as a more economic option than allowing the loans to rollover.
Securitization may, as some analysts have suggested, be Softbank's only alternative. The company's standalone Ba2'/BB-' ratings by Moody's Investors Service and Standard & Poor's would afford any straight debt deal junk bond status. As a result, it is unlikely Softbank could raise either the amount it wants or achieve competitive interest rates via this route.
However, the use of structural enhancements in an ABS transaction would enable Softbank to gain higher credit ratings. Additionally, the stable cash flows of its mobile subsidiary - due to be renamed Softbank Mobile Corp. from Oct. 1 - may be viewed as attractive by potential investors.
Some observers feel with sufficient subordination, a single-A rating would be possible for the senior tranche. At such a rating, securitization could work out 100 basis points cheaper than bank loans.
Even so, one banker not involved said the transaction still faces several challenges. "One issue is to make sure that a transfer of the operations and various rights/ contracts take place smoothly in case of an originator default," the banker said. "The structural details have not emerged as yet, but from my discussions with lawyers, there does not seem to be a perfect legal framework for this.
"Investors ultimately have to be comfortable with the business, Softbank's credit as well as the risk in transfer of operations," he concludes.
Whole business securitizations are something of a rarity in Japan, although Deutsche Bank's involvement on the most recent offering could be of benefit dealing with any legal glitches.
The bank arranged in December the 70 billion deal by Gaia; the pachinko (Japanese equivalent of pinball) operator. The single-A rated deal wrapped up the income from 31 pachinko parlors. The proceeds were used by Gaia to purchase land on which to build new establishments as well as update machinery.
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