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Details emerging about the $5.5 billion bridge loan Deutsche Bank AG and Credit Suisse First Boston are providing to Littleton, Colo.-based EchoStar Communications Corp. to back its planned merger with El Segundo, Calif.-based Hughes Electronics Corp. show that the financing is far from certain. The banks have negotiated an unusual market-out provision that could give them more protection than a traditional material adverse change (MAC) clause, sources close to the deal said. Deutsche and CSFB have “sole discretion” to walk away from the loan if they deem the debt markets illiquid for this deal in the 16 business days after EchoStar and Hughes receive regulatory approval. EchoStar must also be liquid during that same period. Spokesmen for EchoStar, Hughes’ parent, General Motors Corp., and CSFB declined to comment. A Deutsche Bank spokesman said only that, “We are comfortable that we are adequately protected.” Giving lenders sole discretionary power to walk away from a loan is rare. But the EchoStar loan shows how the language of commitment agreements between borrowers and lenders has been changing since Sept. 11. “I have seen directives from lenders making it absolutely clear there is a walkaway right,” said Robert Wolf, a partner at Bingham Dana in Boston. Before Sept. 11, lenders wanted such protection but settled for compromises, such as flexible pricing. “That’s a little different than a pure walkaway,” he added. CSFB and Deutsche Bank agreed in November to each provide a loan of $2.75 billion to finance EchoStar’s $26 billion purchase of Hughes. CSFB stepped in after EchoStar said the terms of a loan proposed by its adviser on the merger, UBS Warburg, were too onerous. The UBS loan included a MAC clause that could be triggered at any time, including before EchoStar received regulatory approval for the deal. But EchoStar’s deal for Hughes hinges on lining up financing. And the company did not want to risk having the deal unravel before regulators ruled, according to Wolf. Enter CSFB and Deutsche Bank. The banks have committed to stay with the deal at least until the regulators rule, which could be a year away. That means that together they will keep $5.5 billion in reserve for EchoStar until they syndicate the loan, or regulators rule. The Federal Communications Commission and the U.S. Justice Department’s antitrust division must approve the merger. EchoStar, however, plans to have the loan totally syndicated before it receives approval on the Hughes purchase, a source close to the deal said. CSFB and Deutsche came to the market last Friday with a $700 million piece of the loan and plan to continue to sell other digestible parts over the next several months. The Financial Times‘ Web site, FT.com, reported Dec. 16 that UBS Warburg has agreed to take a $550 million piece of the loan. According to Wolf, the banks’ ability to syndicate the loan will be more of a market capacity issue than a pricing issue, which is why they wanted to be able to pull the deal at their discretion. Even if the debt markets are functioning after EchoStar receives deal approval, they might not be able to handle such a mammoth loan. The average leveraged loan syndicated during the first three quarters of the year was valued at only $183 million, according to Loan Pricing Corp. At $5.5 billion, the EchoStar loan is equal to 2.8 percent of the $194 billion in leveraged loans syndicated during that period. Wolf added that some of the loan packages sold in the next several months would likely have termination dates that expire before the deal receives regulatory approval. So the need for a liquid debt market when the deal gets approval is important. EchoStar and Hughes’ DirecTV Inc. filed a merger application with the FCC in early December. That filing begins a review process that could extend through summer. The FCC tries to act on applications within 180 days, but it can stop the clock for controversial deals. For CSFB and Deutsche Bank, the loan offers great rewards. EchoStar has paid about $55 million in total to the two banks for providing the guarantee of the bridge loan, according to public filings. Also, in what is expected to be a slow year for deals, the underwriting — assuming the deal gets approved — will help both the lead managers in the leveraged loan league tables. There is also some protection surrounding Hughes’ PanAmSat Corp. as EchoStar will likely buy the division even if it does not receive regulatory approval for DirecTV. CSFB and Deutsche should be first in line to lead the loan for that smaller deal. Copyright (c)2001 TDD, LLC. All rights reserved.

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