Bloomberg News

Nokia Siemens Leads Forward-Start Loan Revival to Cushion Crisis

December 06, 2011

Dec. 5 (Bloomberg) -- Nokia Siemens Networks and Italian builder Astaldi SpA are leading a resurgence in forward-start loans amid rising concern the credit markets will shut to some companies next year.

Issuance of the loans, which lock in funding before debt comes due, rose to 2.8 billion euros ($3.8 billion), in the past month -- almost 40 percent of the total this year, according to data compiled by Bloomberg. Nokia Siemens, the venture of Nokia Oyj and Siemens AG, is seeking 1.5 billion of forward-starts, people with knowledge of the deal said Nov. 28.

The potential breakup of the euro amid fiscal imbalances from Greece to Ireland has prompted European lenders to hoard capital to buffer sovereign debt losses. This year’s forward- starts of 7 billion euros compare with a record 30 billion euros in 2009 when the financial crisis left treasurers with few funding options, the data show.

Companies that “lack access to the bond market are less able to attract liquidity elsewhere and therefore need to protect bank liquidity however they can,” said Jonathan Pughe, head of Royal Bank of Scotland Group Plc’s Europe, Middle East and Africa corporate loans syndicate. “A forward-start is a tried and tested way of doing that.”

Forward-starts pay higher interest and fees in exchange for the promise of future funding. Grupo Dragados SA, the construction unit of Milan-based Actividades de Construccion y Servicios AS, agreed to pay 300 basis points more than the euro interbank offered rate in June for a two-year extension on its debt -- 50 basis points more in interest than on its last transaction arranged in 2009.

Loan Amid Layoffs

A week after disclosing plans to eliminate a quarter of its workforce, the largest layoffs in its history, Nokia Siemens started talks with lenders for a one-year term loan and a revolving credit expiring before June 2015, the people said. The Espoo, Finland-based network-equipment venture wants to extend the maturities of a 2 billion-euro deal maturing next year.

“We have always explored multiple options to strengthen our financing,” Ben Hunt, a London-based spokesman for Nokia Siemens said. He declined to elaborate on refinancing plans.

Astaldi’s loan “allows us to pursue the planned expansion of the group’s activities without challenging the basic assumptions of our business plan,” Chief Executive Officer Stefano Cerri said in the statement on Dec. 2.

The 325 million-euro loan allows Italy’s second-largest construction company to refinance debt until 2016, according to the statement. The Rome-based company replaced a facility for the same amount due in April 2013 and cut 415 million euros of debt maturing that year.

The deals from Nokia Siemens and Astaldi follow a 840 million-pound ($1.3 billion) forward-start for Grainger Plc, the U.K.’s largest publicly traded residential landlord. The loans will extend Grainger’s maturities to between 2014 and 2020, the company said in a Nov. 24 statement.

--With assistance from Joakim Nilsson in London. Editors: Cecile Gutscher, Michael Shanahan

To contact the reporter on this story: Stephen Morris in London at smorris39@bloomberg.net. To contact the reporter on this story: Patricia Kuo in London at pkuo2@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net


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