The TD Securities financing letter requires the resulting company to maintain an investment-grade credit profile, a condition Moody’s considers hard to achieve.
GameStop has launched a $56 billion bid to acquire eBay, announcing it has secured a $20 billion financing commitment from TD Securities, the investment banking division of TD Bank. The proposal, made public this week, immediately raised doubts about its actual feasibility, with a key condition in the financing letter that could block the entire deal.
According to CNBC’s David Faber, citing sources who reviewed the document, the TD Securities letter includes a determining clause: the company resulting from the merger must maintain an investment-grade credit profile. This is a condition that, given the current structure of the deal, appears extremely difficult to satisfy.
Moody’s Ratings published an assessment on Wednesday defining the proposed acquisition as “credit negative” for eBay, due to the substantial increase in financial leverage implied by the deal’s structure. The rating agency estimated that the combined company’s leverage could approach nine times the debt-to-EBITDA ratio, before accounting for any cost-saving synergies. Such a level of indebtedness would almost certainly push the resulting company below the investment-grade threshold, undermining the central condition of the TD Securities financing package.
The acquisition proposal has raised immediate questions about how GameStop can finance a deal of this size. The market capitalization of the video game retailer stands at around $11 billion, a fraction of the implied $56 billion transaction value. CEO Ryan Cohen offered limited clarification on the financing structure, stating only that the company has the option to issue additional shares to complete the deal. eBay confirmed it had received the offer in a statement published Monday, noting that its board of directors will review it.
