BCE Buyout on the Rocks

According to Reuters, the $34.8 billion buyout of BCE, Canada's largest telecom company has stalled. Supposedly, the buyout group (Ontario Teachers Pension Plan, Madison Dearborn, Merrill Lynch, Provdence Equity Partners and Toronto Dominion Bank) still wants to do the deal, but the banks who offered financing are wavering. The banks who had originally agreed to finance the deal have proposed new terms for the debt. Apparently, the new set of terms contained higher interest rates and other "onerous" conditions. Additional details were not immediately available. In a situation like this, open to so much interpretation and mockery, it is entirely appropriate for K10 to offer an imaginary conversation detailing what the lenders may have said to each other in a secret meeting arranged to squash this deal. The lenders were the usual suspects: Citigroup (C), Deutsche Bank (DB), and Royal Bank of Scotland (RBS).

C banker: Ahem. Does anyone actually still want to do this deal?

Silence, followed by hysterical laughter.

C banker: Ok. So, let's suggest some terms that nobody can possibly agree to. First, we have to hike the interest rates.

DB banker: Libor + 3,000 sound good?

RBS banker: Make it 10,000

C banker: Done. Now we have to get rid of this ludicrous PIK toggle feature we originally agreed to.

RBS banker: Brilliant! We'll make up some sort of formula where they actually have to pay us interest biannually.

C banker: Um. I think that's the way bonds used to work before 2006.

RBS banker: Right, right. Of course. I was joking.

C banker: I think we should also ask for free telecom service from BCE for life.

RBS banker: I like that. Very original

DB banker: These terms might be too lenient. They may still want to do the deal at a lower price. We can't risk it!

C banker: True. That would be terrible. We need a sure-fire deal killer. Something sinister. Something....

DB banker: Onerous.

RBS: Yes. That's the right word.

C banker: I have it! We'll add some covenants!

DB banker: Brilliant! They'll never go for that!

RBS: Um...What are covenants?