Chapter 257 Low-interest Loans
"I come today with good intentions, Barron."
Colin Hall said:
"To solve some of your troubles."
"trouble?"
Barron looked at the other party, showing slight doubts, and asked.
"Yes, I know that the bank you cooperate with most is Barclays Bank, and you also have some cooperation with Goldman Sachs Group."
"Originally, your Northen Rock Bank also had a chance. I once expressed good intentions, Colin, but unfortunately, you rejected me."
After hearing Barron's words, Colin Hall shrugged and said:
"I also know about this matter. It was a problem with Burris, the former head of credit at Northrock Bank. He made a bad decision..."
"That's how it is sometimes, Colin. I trust the person who helps when the time is right rather than the icing on the cake."
"That's because I wasn't in London at the time and I'm here to repair our relationship."
Seeing Barron looking at him and gesturing for him to continue speaking, Colin Hall said sincerely:
"I have studied your current liabilities of DS Capital and found that there are a huge number of bank loans, mainly from Barclays Bank and Goldman Sachs Group. The interest rates of these loans are very high, higher than 12%. I know that these loans come from When you conducted some leveraged buyouts, the European Union's bank loan benchmark interest rate was at a high of 5%. Such financing interest is normal for leveraged buyouts..."
“But now the EU’s bank loan benchmark interest rate is below 3%, and even in the United States, this figure has been at 1% for several months... Under such circumstances, the interest rates on your loans appear to be too high. …”
Barron admitted that Colin Hall was right. In the beginning, for the acquisitions of O2, Manchester United and Argos, Barron used leveraged buyouts, paying part of his own funds, and other funds from Barclays Bank and Goldman Sachs Group are financing, and the interest rates on these financings are very high, many exceeding 12%...
Of course, compared with the future value growth of these acquisition targets, Barron's can afford these slightly high financing costs when he thinks that he can get them at a lower price, or at a more appropriate time. borne.
But after that, he also tried his best to find ways to reduce the cost of these financings.
For example, O2 Telecom raised 2 billion pounds through two issuances of corporate bonds and has already paid off part of its debt in advance.
Manchester United and Argos have each issued 500 million pounds of corporate bonds and have completed the repayment of the financing used to acquire them.
But now, Barron's is still responsible for 3 billion pounds of high-cost financing with an interest rate of more than 12% for O2 Telecom's debt.
This means that the interest that these debts need to bear every year is as high as 360 million pounds. If other corporate debt interests are included, the annual interest will still exceed 460 million pounds, which is still a high burden.
For example, although Barron's has made a lot of profits from this operation of the EUR/USD foreign exchange transaction, even after completing the acquisition of 100% of SLEC's shares, he still has more than 2.15 billion pounds of funds in his account, but Among them, there are about 400 million pounds of funds, which need to pay interest on the financing of his previous leverage transactions...
Before meeting Colin Hall today, Barron's was also preparing to cover the current high-cost financing of 3 billion pounds through new lower-interest loans, or corporate bonds.
After all, the EU's bank loan benchmark interest rate was already below 3% at this time, and had reached a low of 2.5% for a period of time. This was already half of the 5% figure when he was financing...
This also means that the current bank loan interest rate is far lower than that of the time. Using new low-interest loans to cover high-cost loans is itself a measure often used to reduce loan burdens after leveraged buyouts.
Therefore, after hearing Colin Hall's words, Barron had roughly guessed what the other person meant. He said:
"So? Colin, what's your plan?"
"I said that I hope to re-establish our friendship, Barron, you know that our Northrock Bank is also very strong. We can provide you with a loan, and the interest is limited to the current basic interest rate for bank loans. Of course, This is definitely a mortgage loan, and you need to use your shares in O2 Telecom to mortgage it, but the process is very relaxed. We can help you repay the remaining loans first, and then mortgage the shares to us."
If it is what Colin Hall said, then with the current bank loan benchmark interest rate slightly higher than 2.5%, the cost of the loans they provide is even lower than the 3.5% interest rate at which he issued corporate bonds, which is still very appropriate. , but the problem is...
Barron asked:
"This is an option that can be considered, Colin, but what I am concerned about is, how much loan amount can you provide? In addition, what is the proportion of O2 Telecom's shares that I need to pledge? Also, what is the term of your loan? , after all, you know, you have a precedent of early recovery of loans, so I have to be cautious."
Colin Hall knew that Barron's so-called early loan withdrawal was referring to the fact that when the Devonshire family encountered a financial crisis, Northrock Bank once urged them to repay before the loan was due. things.
He explained:
"I have also learned about the previous matter. To be honest, Northrock Bank was indeed worried about the repayment of the loan before it was due, and disturbed it in advance. This needs to be apologized, but you can also bring it up at the time. For those who repay the loan early, we will also waive the interest for the short loan period. Of course, I can guarantee that this will never happen again."
"We can provide you with a loan of 3 billion pounds, allowing you to repay the high-interest financing that still exists from Barclays Bank and Goldman Sachs Group. This term can be up to 5 years, and the interest rate is as I told you. , because it is a mortgage loan, the interest rate will be within 3%, well, I can give you 2.8% interest..."
"As for the proportion of O2 Telecom shares that need to be mortgaged, I know that in your previous financing of 5 billion pounds, you mortgaged all the shares of O2 Telecom to Barclays Bank and Goldman Sachs Group. Based on this calculation, we need O2 Telecom The mortgage share ratio of Telecom should be 60%, which also corresponds to the mortgage share of the 3 billion pounds of financing in Barclays Bank and Goldman Sachs Group.”
Hearing Colin Hall's words, Barron couldn't help but sigh. In this era of low interest rates, the interest rates on loans are really attractive. You must know that before he was reborn, Barron was also exposed to a lot of related businesses. At that time, because of The British Consumer Price Index (CPI) increased higher than expected, causing bond yields to rise. Market bets on the peak of the benchmark interest rate rose to 6.5% from the previous 5%, which in turn pushed fixed mortgage rates to rise accordingly, reaching 6.7%.
Compared with now, it can be said to be heaven and earth.
"I can consider all of these. The only thing is that the situation now is different from that then, because you can see that O2 Telecom is developing well. The number of users of this company has now exceeded that of when I bought it. It has been very successful in developing markets in Germany and France. Therefore, the valuation of O2 Telecom is now at least twice that of the original. So for the mortgage of this 3 billion pound loan, 60% of the shares It’s definitely unacceptable to me.”
After hearing Barron's question about the proportion of mortgage shares, Colin Hall smiled and said:
“But don’t forget Barron, the interest rate on the loan we give you is already very low, so you need to have some protection in terms of collateral, and if it is a long-term loan, you need to be more cautious because you cannot predict what will happen next. We can only be relatively pessimistic about the business situation."
