Moody's Investors Service has assigned its first senior unsecured bank loan rating of A3 to a $450 million multi-borrower, multi-tranche syndicated loan facility for Japanese construction and mining equipment giant, Komatsu. Co-arrangers, Citibank and Sumitomo Bank, closed syndication on Wednesday, but no details as to a final list of participants or the pricing of the deal, are available yet. Citibank was the bookrunner.
Moody's expect that the rating will be the first of many in the Japanese syndicated loan market. "We're 100% sure that the number of syndicated loans will increase over the next few years," says Junichi Yamaki, senior vice president of Moody's Japan K.K.
There are several reasons for this explains Motomu Katsumata, vice president of global loans at Citibank, Japan: "Major banks in Japan like the syndicated form of loan where they can make money from arranging fees without any lending risks. This is because smaller local banks are willing to take all the risk. They don't have the name but they have the money. Local banks are high in deposits, but have no customers to lend to." Fees usually range between 50bp to 100bp, according to Katsumata.
The syndicated facility for Komatsu will replace existing committed bank facilities of Komatsu and its US subsidiaries. The loan consists of a $300 million 364-day tranche and a $150 million two-year tranche. Both are unconditionally guaranteed by Komatsu and contain a USCP back-stop sub-facility for the use of Komatsu Finance America Inc (KFA). The $300 million facility will be for general usage by the group entities and will be available in either US dollars or Japanese Yen. The second tranche is designated for the exclusive use of KFA.
Moody's says the rating reflects Komatsu's prominent industry position in Japan's construction equipment market and its dominance in main products and competitive technologies. Komatsu's operating margins are lower than its competitors, partly because of its larger presence in lower-margin markets, according to Moody's. However, the ratings agency does warn that ongoing and potential earnings pressures, sustained improvement in its cash flow generation, and a further reduction of its total debt, will be necessary to stabilize the rating position.
