Sotheby’s has agreed new loan agreements worth $850 million which will allow it to double the amount it offers in auction guarantees from $300 million to $600 million. GE Capital led the transaction.
The $850 million of revolving debt is split into three parts: a one year $50 million incremental loan which can be rolled over – this has higher advance rates against certain assets and higher commitment and borrowing costs; a $300 million five year agency credit agreement which is mainly designed to provide working cash to the auction house and which replaces a $150 million loan; and a $550 million five year loan for Sotheby’s Finance which is designed to be used for funding client loans, up from a $450 million facility. The total amount that Sotheby’s can borrow is $850 million.
GE Capital is administrative agent, collateral agent and a lender. GE Capital Markets, JP Morgan Securities and HSBC Bank are joint lead arrangers and joint bookrunners.
The auction house believes that it can get a better return by funding its finance subsidiary through dedicated loans rather than through its own cash.
“We have established a separate capital structure for the finance segment that provides for the debt funding of loans through a dedicated revolving credit facility,” said Patrick McClymont, CFO of Sotheby’s, during an analyst call last month. “Debt funding the loan portfolio reduces the finance segments cost of capital and enhances returns.”
“Debt funding the loan portfolio reduces the finance segments cost of capital and enhances returns.”
The new loan cost $2.2 million to structure. If Sotheby’s draws down the full amount available its yearly charges would be $1.1 million.
Sotheby’s Finance has been growing its portfolio this year. On July 31 it was $611 million up 28% from the end of 2013. It had borrowed $379 million to fund this from the earlier facility. Sotheby’s Finance’s revenue for the second quarter of 2014 increased by 27% ($2.2 million) and is up by $3.3 million for the first half of its 2014 financial year.
Banks that particpated in the loan included: General Electric Capital, JPMorgan Chase, HSBC, Goldman Sachs, RBS Citizens, Credit Suisse, NYCB Specialty Finance, Comerica Bank, The PrivateBank and Trust, Investors Bank, Israel Discount Bank of New York, People’s United Bank, TD Bank, Bank Leumi USA, Webster Business Credit and Flushing Bank