Bank of China contributes $1 billion USD to a $4 billion USD syndicated loan to Shuanghui International Holdings to finance its acquisition of a 100% stake in Smithfield Foods, Inc. (Linked to Record ID#107920)

Project narrative

On August 30, 2013, a syndicate of eight banks — including the New York Branch of the Bank of China Limited (BOC) and Industrial and Commercial Bank of China (Asia) Limited (ICBC (Asia)) — signed a $4,000,000,000 USD (£2 billion GBP) syndicated term loan facility agreement with Shuanghui International Holdings Limited — a Cayman Islands-incorporated Hong Kong-based Chinese privately-held company soon renamed WH Group Limited that controlled publicly-traded Henan Shuanghui Investment & Development Co, China's largest meat processor — to fund its acquisition of a 100% stake in Smithfield Foods, Inc. This term loan was divided into two tranches: a $2.5 billion USD tranche with a maturity period of three years, a final maturity date of on August 30, 2016, and an interest rate of LIBOR plus a margin of 350 basis points (bps) and a $1.5 billion USD tranche with a maturity period of five years and an interest rate plus a margin of 450 bps. Interest would be payable at the end of each interest period The facility carried a $75 million USD arrangement (management) fee capitalized to the syndicated loan and amortized over the loan. The facility was to be guaranteed by certain subsidiaries of Shuanghui International Holdings, but not Smithfield or its subsidiaries. The facility was to be guaranteed by certain subsidiaries of Shuanghui International Holdings, but not Smithfield or its subsidiaries. This facility was secured by (i.e. collateralized against) a series of collateral that ultimately was substantially all of the assets and property Shuanghui International Holdings and the guarantors, including all of the shares of Smithfield: a pledge of 100% of the equity interests in Henan Luohe Shuanghui Industry Group Co., Ltd. and the relevant rights and interests held by Rotary Vortex Limited to BOCHK in a share pledge agreement dated August 31, 2013; a pledge of 286,494,426 A shares of Henan Shuanghui Investment & Development Co., Ltd. and the relevant rights and interests held by Rotary Vortex to BOCHK; a first ranking registered pledge over the 100 shares in Granta Investments sp.z.o.o. up to the maximum secured amount of $6,000,000,000 USD charged by Sun Constellation Luxco S.à r.l. to BOCHK in an agreement for registered pledge dated September 9, 2013; a first ranking registered pledge over the Collection of Assets up to the maximum secured amount of $6,000,000,00) USD as charged by Granta Investments sp.z.o.o. to BOCK in an agreement for registered pledge dated September 9, 2013; a continuing security interest in the pledged collateral as charged by United Global Foods (US) Holdings, Inc. to BOCHK in a stock pledge agreement dated September 13, 2013; a continuing security interest in the collateral charged by United Global Foods (US) Holdings in a security agreement dated September 13, 2013; a continuing security interest in the pledged collateral as charged by Sun Constellation Luxco to BOCHK in a stock pledge agreement dated September 13, 2013; a pledge of 2,020,000 shares in Sun Constellation and its present and future rights, title, claims and interest in such shares to as charged by Rotary Vortex to BOCHK in a share pledge agreement dated September 15, 2013; and security assets charged by Sun Constellation Luxco to BOCHK in an account pledge. In addition to the formal security, United Global Foods (US) Holdings was party to an account control agreement dated September 13, 2013 with BOCHK and the New York Branch of BOC. BOC contributed $1 billion USD the loan syndicate, while the other seven lenders, including ICBC (Asia) contributed between $400 million USD to $500 million USD. Record ID#107919 captures BOC's contribution. Record ID#107920 captures ICBC (Asia)'s contribution. In addition to BOC and ICBC (Asia), the following lenders contributed to the loan syndicate: Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank), Crédit Agricole Corporate and Investment Bank (CACIB), DBS Bank Ltd., Natixis, The Royal Bank of Scotland plc (RBS), and Standard Chartered Bank (Hong Kong) Limited. On May 28, 2013, BOC issued a binding commitment letter to Shuanghui International in which it committed to provide a $4.0 billion USD senior secured first lien term loan facility for Shuanghui to make an equity contribution to its wholly-owned Virginia-incorporated subsidiary Sun Merger Sub, Inc.. On June 26, 2013, BOC held an event to promote the loan syndicate, which was attended by nearly 30 banks and received commitments that would have oversubscribed the loan by 2.1 times. BOC invited banks to underwrite $1 billion USD each for all in pricing of 400 bps on the three-year tranche and 500 bps on the five-year tranche. Rabobank, Natixis, RBS, and Standard Chartered Bank each made $1 billion USD commitments during syndication, but were scaled back. BOC, ICBC (Asia), CACIB, DBS, Natixis, Rabobank International, RBS, and Standard Chartered served as original mandated lead arrangers and bookrunners. Bank of China (Hong Kong) Limited (BOCHK) acted as facility agent Smithfield Foods, Inc., a Virginia-incorporated firm headquartered in Smithfield, Virginia, was the largest publicly-traded pork processor and hog producer in the United States and the world's largest hog farmer and pork producer. It was listed on the New York Stock Exchange. Its brands include Eckrich, Farmland, Healthy Ones and Armour. Smithfield had a global herd of 1.09 million sows and raised close to 16 million hogs annually. In the 12 months ended April 28, 2013, Smithfield had net income of $183.8 million USD and had $1 billion USD in cash on its balance sheet. On May 28, 2013, Shuanghui International Holdings Limited entered into a definitive merger agreement with Smithfield Foods, Inc. in which Shuanghui would acquire all outstanding shares of Smithfield for $34.00 USD per share in Smithfield stock, or $4.7 billion USD, with a total consideration of $7.1 billion USD when including the assumption of Smithfield's net debt, via its wholly-owned subsidiary Sun Merger Sub, Inc. merging into Smithfield, with Smithfield as the surviving corporation. The acquisition was subject to Smithfield shareholder approval and certain regulatory approvals. In addition to the BOC-led $4 billion USD loan, Morgan Stanley Senior Funding, Inc. issued a binding commitment letter to Sun Merger Sub, Inc. for a $750,000,000 USD for a senior secured asset-based revolving credit facility to backstop to efforts to amend each of Smithfield’s existing asset-based revolving credit agreement, $1.65 billion USD in the aggregate for a senior secured term loan facility, and up to an aggregate principal amount of $1.5 billion USD for senior unsecured bridge loans. Ultimately, Morgan Stanley led a $3 billion USD senior syndicated term loan for the acquisition. Shuanghui also used its own cash reserves and a rollover of existing Smithfield debt to finance the acquisition. WH Group never explicitly stated its motives to acquire Smithfield Foods, but analysts believed it was because it sought access to more pork supplies for China’s growing market and Smithfield’s technology, food safety, and management capacity, especially given a Chinese initiative to upgrade sanitation and technology in the pork industry. Smithfield voluntarily filed for CFIUS review. The acquisition raised national security concerns amongst some in the United States. Iowa U.S. Senator Chuck Grassley called for a CFIUS review of the acquisition, arguing that Chinese food companies had a record of poor food safety and that it was important to scrutinize the Chinese Government's role in the company. On June 20, 2013, Ohio Senator Sherrod Brown sent a letter to U.S. Treasury Secretary Jack Lew co-signed by a bipartisan group of 15 senators, including many members of the Agriculture Committee, requested CFIUS include U.S. Department of Agriculture officials in the review, arguing the acquisition should be reviewed for its long-term impact on labor, producers, and consumers and that there should be guarantees that the food products comply with U.S. food safety standards. In a separate letter to Secretary Lew, Montana Senator Max Baucus, Chairman of the Senate Finance Committee, and its Ranking Member Utah Senator Orrin Hatch issued a letter complaining about Chinese barriers to imports of U.S. foodstuffs, particularly pork and beef. Virginia Congressmen Frank Wolf and Randy Forbes asked for a market impact investigation by the U.S. Department of Justice, alleging strong ties between Shuanghui and the Chinese Government, though only citing BOC's loan as evidence. Massachusetts Senator Elizabeth Warren and Congresswoman Rosa DeLauro wrote a letter to U.S. Trade Representative Michael Froman, questioning foreign ownership of agricultural land in relation to the proposed acquisition. A group of seventeen farm, producers, consumer and rural organizations in a letter to CFIUS on July 9, 2013 alleged threats U.S. security interests, food security, safety of food supply, and even technology transfer for maintaining safety in food supply. Michigan Senator Debbie Stabenow, the chairwoman of the Senate Agriculture Committee Chairwoman Debbie Stabenow, stated the committee would hold hearings on the acquisition, questioned Shuanghui’s food safety record, argued that food security was national security, though CFIUS had not normally ventured into it, and encouraged alternative bids for Smithfield. Stabenow and Agriculture Committee Ranking Member Mississippi Senator Thad Cochran wrote a letter to Secretary Lew about food safety concerns. At the Senate Agriculture Committee hearing on the acquisition on July 10, 2013, Smithfield Foods president and chief executive officer Larry Pope stated that operations would be impacted and argued that the acquisition would allow for more U.S. exports to China. The acquisition also had antitrust concerns to ensure Smithfield, as the world's largest hog farmer and pork producer, did not already gain a larger share in the U.S. pork market. The acquisition passed CFIUS review. BOC credited the debt financing structure, which only had two Chinese state-owned banks and was otherwise comprised of international banks, as facilitating CFIUS approval by limiting the sensitivity of the acquisition. The acquisition was expected to close in the second half of 2013. The acquisition was completed on September 26, 2013. The acquisition was the largest by a Chinese enterprise in the United States, the largest in the history of the global animal husbandry industry, and the largest in the world's non-natural resources sector by a Chinese enterprise. After the acquisition, Shuanghui International, which was renamed WH Group, became the world's biggest pork products producer, with a business scope covering pig breeding and slaughtering and the processing and sales of meat products and fresh pork. In late April 2014, WH Group Limited postponed its initial public offering (IPO) because week demand, delaying the company's plans to cut the debt it took acquire Smithfield. On August 5, 2014, WH Group Limited launched its IPO on the Stock Exchange of Hong Kong, with proceeds from the share issue exceeding $15.92 billion HKD. Given that Smithfield was now a core subsidiary of WH Group, the effect was that Smithfield was relisted. WH Group used portions of the August 2014 IPO and its internal cash to fully repay the $2.5 billion USD three-year tranche of the $4 billion USD tranche. On September 30, 2014, a syndicate of 12 banks — including BOC — entered into a $1.5 billion USD syndicated loan agreement with WH Group Limited. This loan carried a maturity period of five years and an interest rate based on LIBOR plus a margin ranging from 2.48% to 3.08% based on the borrower's consolidated leverage ratio, with an initial margin of 2.78%. The proceeds of this loan were used by the borrower to fully repay and refinance the entire outstanding principal of the $1.5 billion USD five-year tranche, thus leaving the entire $4 billion USD term loan facility completely repaid on October 8, 2014.