Global insurance giant Allianz is believed to be the company that wants to support the Australian east coast grain market for the next 25 years, as part of a $ 3.3 billion takeover bid for cereal handler GrainCorp.
Street Talk Understands GrainCorp Bidder Long-term Assets Partners have spoken with Allianz to take the agricultural risk associated with the company's holdings, which would support the proposed capital structure.
On the basis of the proposal, Allianz would write a contract to close the weather risk and ensure that long-term asset partners would be able to pay repayments of the $ 6 billion in rising debt.
It is not known how strongly Allianz is committed to the deal, but the fact that LTAP approached GrainCorp and secured support from the US investment bank Goldman Sachs and fund manager Westbourne Capital suggests that it is very serious.
Allianz is one of the world's largest insurers.
The company is listed in Europe with a market capitalization of € 80.5 billion ($ 125 billion) and annual sales of € 126 billion last year. It also has a significant presence in Australia and was the fourth largest general insurer in the country with $ 3.7 billion in net earned premiums in 2017, according to PwC.
The insurance contract would form the core of the proposed capital structure of investment quality. It would effectively offset GrainCorp's revenues, which are affected by weather conditions each year and ensure that it can meet its debt repayments.
As Street Talk announced Tuesday morning, LTAP is trying to take GrainCorp privately in a securitization-type deal, using a debt heavy capital structure that could still get an investment grade rating.
LTAP has raised $ 3.6 billion in debt – including $ 3.2 billion from Goldman Sachs and $ 400 million from institutional investor Westbourne Capital. It is assumed that very little equity is involved in the proposal.
Goldman Sachs, who is advisor to the bidder and who has subscribed to the acquisition financing, is expected to invest the debt in the syndicate and sell it in documents to other lenders and institutions. The debt is expected to be assessed as investment grade by leading rating agencies.
The structure of the "whole company securitization" is supposed to be the brainchild of LTAP managing director Chris Craddock, who has gained the support of a number of well-known business people, including the former ConnectEast Group and Tony Fedfield, chairman of Tony Field, and CEO Lance Hockridge from ex-Aurizon Holdings.
The structure is likely to have the management of GrainCorp – and the boards of other ASX listed companies – who are considering whether it is in the interest of their shareholders to follow similar securitization programs.
Some have already tried it; Telstra wanted to securitise payments from NBN Co until the deal was turned upside down last year, while NSW treasurer Mike Baird previously thought about securitizing the proceeds from the state lotteries earlier this decade. Interestingly, GrainCorp's adviser Macquarie Capital was involved in both examples.
LTAP has made a share offering of $ 10.42 for GrainCorp and an indicative and non-binding basis.
GrainCorp has granted the due diligence of the bidder, which is expected to last four weeks.
more to come