TIMEWARNER-M&A/AT&T-LOANS-Market welcomes AT&T's $40 bln Time Warner loan

By Michelle Sierra, Lynn Adler and Karen Schwartz

Oct 24 (Reuters) - AT&T Inc's plan to buy Time Warner Inc for $85.4 billion in the biggest global acquisition of the year will bring the second-largest U.S. bridge loan financing ever to a market hungry for mergers and acquisitions loans.

The new $40 billion bridge loan backing the deal is being welcomed by bankers after a deep slump in investment-grade M&A lending in the first nine months of the year, bankers said.

The loan will be lucrative for banks, led by Bank of America Merrill Lynch (BAML) and JP Morgan (JPM), that are arranging the jumbo bridge loan. AT&T's swoop on Time Warner was announced on Saturday.

The 18-month bridge loan is expected to be split between a $30 billion commitment to issue bonds and $10 billion of term loan commitments, a banking source said.

Lenders will earn $110 million to $130 million in fees for arranging this financing, according to Jeff Nassof, a director at Freeman Consulting Services, said via email.

"These bridge loans are especially important to banks now, given weakness in the overall investment banking revenue pool," according to Nassof.

If the acquisition is approved by regulators, AT&T will gain control of media assets including cable TV channels HBO and CNN, as well as film studio Warner Bros. The deal, which combines content with delivery, is an attractive proposition for liquid lenders.

"This is a pretty strategic asset, and the financing markets are as strong as they've been in a long time," a loan banker said. "No matter what the outcome of the (US) election is this is a very compelling strategic transaction for both companies."

The $40 billion bridge loan is a large underwriting commitment in volatile markets and the two lead banks are expected to syndicate some of the risk shortly to other relationship banks.

"Given the risk and the size and the fact that there is going to be a lot of scrutiny around regulatory issues, JP Morgan and BAML, they're going to want their risk to come down," a second loan banker said.

Only the $30 billion bridge to bond issues is expected to be syndicated, the first banker said.

"The deal demonstrates banks' continued confidence in the bond markets, even despite the uncertainty around elections and the Fed," Nassof said. "JPM and BAML should be first in line to lead the bond financing to replace the bridge, which could generate another $200 million in underwriting fees down the line."

In the US, AT&T's financing is the second largest bridge loan after a $49 billion bridge loan backing Verizon Communications' acquisition of British telecom Vodafone Group's stake in its U.S. wireless business in 2013.

These deals overshadow other large U.S. bridge loans, including a $30.9 billion deal backing pharmaceutical company Actavis' acquisition of specialty pharmaceutical company Allergan in 2014, a $22.5 billion bridge loan backing insurer Anthem's purchase of rival Cigna in 2015 and a $22.5 billion loan that supported drugmakers Pfizer and Wyeth's 2009 combination.

AT&T's deal is the second biggest bridge loan globally after a $56.9 billion deal backing German chemical company Bayer's $66 billion acquisition of U.S. seed firm Monsanto which has been allocated.

The fact that AT&T has obtained an underwritten bridge loan is a good sign for loan volume, the two bankers said. The bond market has been receptive this year and investment-grade companies have been able to use balance sheet cash or issue bonds to pay for acquisitions and bypass the loan market altogether.

Investment-grade M&A lending slid 26 percent to $100 billion in the first three quarters of the year from $135 billion in the same period last year, Thomson Reuters LPC data show, and is far off the full-year total of $181 billion in 2015.

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AT&T's new bridge loan pays a margin ranging between 75 basis points and 150 basis points, based on ratings.

In line with other similar financings, the margin on the loan steps up and becomes more expensive over time, which gives AT&T an incentive to replace the bridge with permanent financing.

JP Morgan and BAML declined to comment. AT&T and Time Warner did not immediately return calls and emails for comment.

The corporate tie-up is expected by the markets to face regulatory pushback amid a wave of consolidation in the telecom and media sectors.

This deal comes on the heels of cable company Comcast Corp's $30 billion purchase of NBCUniversal. Verizon Communications Inc, AT&T's wireless rival, is in the process of buying internet company Yahoo Inc for about $4.8 billion.

(Reporting by Michelle Sierra, Lynn Adler and Karen Schwartz; Editing by Tessa Walsh)