Stoppage of play’s mysterious financing letter, which underpins its bold $56 billion bid for eBay appears to be a central question in the takeover project, while questions multiply as to whether the operation is really financeable.
The video game retailer announced it has secured a $20 billion financing commitment from TD Securities, part of TD Bank. But one key condition attached to that letter could ultimately make or break the deal: The combined company would have to maintain an investment-grade credit profile, according to CNBC. David Faber » reported, citing people who had seen the document.
Moody’s Ratings said Wednesday that the proposed acquisition would be “credit negative” for eBay due to the substantial increase in leverage implied by the deal structure.
The ratings agency estimates that the combined company’s leverage could approach nine times debt-to-earnings before interest, taxes, depreciation and amortization, before accounting for cost-cutting synergies.
That level of debt would likely push the combined company below investment grade, potentially compromising a key condition attached to TD’s financing package.
The proposed buyout raised immediate questions about how GameStop could finance a transaction of this size. The video game retailer’s market value of around $11 billion is only a fraction of the deal’s implied value.
CEO Ryan Cohen offered limited clarity on the structure other than saying that his company has the ability to issue additional shares in order to complete the transaction.
EBay has confirmed that it received the offer in a statement Monday, and said its board would review it.
The New York Times and Semafor reported on the mysterious letter on Wednesday.