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Hilton Hotels is set to close its take private deal shortly after the shareholder meeting in early October, sources close to the situation have confirmed.
The Blackstone Group announced that it was paying USD 26bn in cash for Hilton Hotels on 3 July, in one of its biggest deals this year. The buyout firm is paying USD 47.50 per share for the hotel chain, a 40% premium to its closing share price on the day of the announcement.
The deal was said to be well insulated against continued deterioration in the credit market through the use of CMBS and the strength of Hilton’s commercial real estate, which has yet to see the spillover effect from the subprime crisis.
Bear Stearns, Bank of America, German American Capital, Goldman Sachs Mortgage Company, Morgan Stanley Mortgage, Lehman Brothers Holdings Inc. and Merrill Lynch Mortgage Lending are providing debt financing in an aggregate principal of USD 21bn or 80% of the total consideration payable.
Although the company did not provide details on the financing of this transaction, sources close to the deal said the deal is financed through commercial mortgage-backed securities (CMBS) and does not contain bridge financing.
The fast-growing market for Collateralized Loan Obligations (CLO) has almost shut down in recent weeks, making loans for leveraged buyouts harder to sell. CMBS issues have been hurt by the spillover effect of delinquencies and foreclosures in the single-family mortgage market and in recent weeks investors have either pulled out or demanded higher yields from the CMBS.
Responding to the potential difficultly of finding buyers for USD 21bn of CMBS, two sources close to the deal said all parties are fully committed to the transaction and there have been no talks on changing the terms of the financing to make it more attractive to CMBS buyers, or delaying the closing to weather the credit storm.
Another source close to the deal and a legal source familiar with the situation said banks feel comfortable holding “Hilton’s paper” on their own books until the credit market finds a new balance.
The risk of holding Hilton’s CMBS was equally distributed among the six banks with Bear Sterns holding the biggest slice of the financing:“a point or two more than the others”, said one of the sources close to the situation.
Market investors today said Hilton/Blackstone was their safe heaven at a time when other LBO transactions are facing the possibility of being restructured or delayed.
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