Of the few significant telecoms deals that closed in the sub-Saharan market last year the 'medium-term loan program' for MTN Uganda was the most innovative – a loan structure with MTN program characteristics.

The deal is a first for the region – an ongoing funding program that enables MTN Uganda to borrow up to $150 million ($100 million of which was issued in the initial syndication) on a senior secured basis at any point in time, and enabling MTN to address limitations on its additional unsecured indebtedness and upstream dividends.

Lead arranged by Absa Capital (also global-coordinator), Barclays Bank of Kenya, Barclays Bank of Uganda, KCB Bank Uganda, Stanbic Bank Uganda and Standard Chartered Bank Uganda, the initial $100 million equivalent facilities are split between a UGX118.8 billion ($60 million) five-year local currency term loan, a $20 million five-year term loan and a UGX39.6 billion five-year revolving credit.

Financings of this type are normally done on a senior secured basis in the sub-Saharan market, typically in the form of a floating charge over all of the assets of the borrower (excluding the telecommunication licence due to regulatory and legal constraints). The borrower is therefore unable to secure additional financing as it becomes available, despite having the cash flows and the credit profile to support additional debt without refinancing the existing debt to release the existing security. This results in the unnecessary additional costs of a complete refinancing, in terms of security registration on the whole amount, as well as costs, upfront fees and other out of pocket expenses that are incurred every time the borrower refinances.

Conversely, under the MTN Uganda structure the terms of the financings – initial and future (up to $150 million) – are set in a common terms agreement, with an accession mechanism allowing other facilities to accede to these common terms and become part of the same syndicate. Any new lenders will have to sign a short facility agreement, setting out mainly the commercial terms, while all the credit and other major terms have already been included in the common terms agreement – similar to a pricing supplement in the case of a bond issue. As the facilities are repaid, the borrower can continue to issue more debt under the program by entering into these facility agreements (to the extent the total debt amount outstanding does not exceed $150 million).

Because a key driver of the structure is the minimisation of security re-registration costs, each financing under the program has its own security (a floating charge over all of the assets of the borrower excluding the telecoms licence). However, each group of lenders is also required to accede to the intercreditor agreement which ensures that all the secured lenders rank pari passu – in effect the intercreditor agreement equalises the different debentures (all of which have the same agreed form) obtained and registered at different points in time, thus ensuring that all the creditors end up ranking pari passu.

Consequently, and in addition to removing the need to release existing security and incur a cost on reregistering it as part of the refinancing process, the borrower does not have to put in place a security of $150 million upfront, only a security up to the amount issued under the program – the costs savings are thus significant.

The deal adopts European leveraged finance documentation standards to manage the relationship between various creditors that might be providing facilities to MTN Uganda in the future, as well as multiple security arrangements that results from the granting of additional facilities under the program. It is the first time that the new LMA recommended form of intercreditor agreement for leveraged finance transactions has been used in the context of syndicated loans in sub-Saharan Africa.

The intercreditor arrangements also allow MTN Uganda to enter into hedging transactions on a secured and pari passu basis with debt providers, thus enabling it to hedge against currency and interest rate fluctuations when the opportunity arises.

In addition to the structural innovation, the deal is the largest syndicated loan for a corporate borrower in the Ugandan market to date. The facility was well subscribed by 11 domestic, regional and international financial institutions and adopted a two-phase syndication strategy: The second phase, brought in commitments from Bank of Africa Uganda; Citibank Uganda; DFCU Bank; Ecobank Uganda; Orient Bank and United Bank for Africa Uganda at the general syndication stage. East African Development Bank, Housing Finance Bank, and Bank of Baroda Uganda also joined the syndicate post financial close.

The transaction demonstrates the ability of local and regional financial institutions to support syndicated loan transactions and provide a sizeable portion of the commitments: 58% of total commitments were raised from international banks, with the remaining 42% from local and regional institutions (post accession of Bank of Baroda, East African Development Bank, and Housing Finance Bank).

The support from local banks also enables MTN to maximise local currency at the expense of US dollar commitments thus minimising foreign exchange risk (the final split is 80% UGX and 20% dollars).

MTN Uganda
Status: Financial close 13 October 2009
Description: Hybrid medium term loan programme
Sponsor: MTN Uganda
Mandated lead arrangers: Absa Capital, Barclays Bank of Kenya, Barclays Bank of Uganda, KCB Bank Uganda, Stanbic Bank Uganda and Standard Chartered Bank Uganda
Participants: Citibank Uganda, DFCU Bank, Ecobank Uganda, Orient Bank and United Bank for Africa Uganda, with East African Development Bank, Housing Finance Bank, and Bank of Baroda Uganda
Sponsor legal counsel:
Webber Wentzel; Kampala Associated Advocates
Lender legal counsel: Deneys Reitz; Shonubi, Musoke & Co Advocates