Entirely funded by bank debt, and facing the prospect of all its debt facilities maturing in 2010, Logica was looking to refinance in the second half of 2008. “We knew the external environment would be tough and that banks’ balance sheets were constrained,” comments Tim Allison, Group Treasurer of Logica. “We planned the transaction carefully and launched it at the right time for the company.”

However, with the collapse of Lehman Brothers and the subsequent turmoil in the banking market coming during the course of the negotiations, this proved to be a particularly difficult time to undertake such a project. “As events unfolded, some of our relationship managers found their internal bank rules changing almost weekly, and the response from capital and credit committees became very difficult to predict, for the banks as much as ourselves,” says Allison.

“It was vital that we maintained a clear financing plan and communicated regularly with every bank involved in the process. The banks needed to be clear that the market turmoil did not affect our plans and that the transaction was on track.”

Progress was slowed by the market conditions and pricing increased during the course of the negotiations to reflect the banks’ own increased cost of funding. However, good communication kept the transaction on course and Logica was able to negotiate a new €500m debt facility, replacing £480m of existing facilities. Eleven relationship banks provided the facility, including eight at the MLA level. The new facility comprised two tranches: a €200m term loan facility maturing in November 2011 and a €300m revolving facility maturing in November 2013.

“By including a five-year tranche, the group achieved secure medium-term funding in an environment where such a transaction was considered virtually impossible by analysts and commentators,” says Allison. “The transaction was achieved as a result of the company’s exceptionally strong bank relationships, something which needs a considerable amount of time investment as the business model of an IT services company is not easy to understand.”

Both the CFO and the treasury staff are involved in keeping the core group of relationship banks informed about Logica’s business performance, financing plans and strategic objectives. This approach helped ensure that the transaction was well received and understood despite the worsening market conditions.

“Finalised at the end of November 2008, this deal was a particularly striking achievement in the context of the financial crisis.”

Finalised at the end of November 2008, this deal was a particularly striking achievement in the context of the financial crisis. “We are not aware of any other five-year debt facilities signed in the UK/European bank loan market in Q4 of 2008 or subsequently,” says Allison. “The deal was extremely well received by the market, with the five-year tranche attracting much comment. The following month, the group successfully raised £90m of new equity in a private share placing. This, in combination with the new debt facility, took Logica a long way towards refinancing its 2010 debt maturities. The group closed the year with a very strong cash flow performance, giving further confidence for customers and shareholders alike.

“Looking ahead, the group continues to keep financing options under review, both bank and non-bank, and is as ever keeping close to its relationship banks.”