Case Study: SAP Refinances €2bn Revolving Credit Facility

SAP SE is the world’s leading provider of enterprise application software, business analytics and enterprise mobility tools. It has more than 261,000 customers around the globe and 67,650 employees worldwide.

Headquartered in Walldorf, Germany, the multinational corporation’s (MNC) global treasury department, which looks after global cash management, financial risk management, capital market strategy and external funding worldwide, recently completed an early refinancing of its €1.5bn credit facility, upping its limit to €2bn and reorganising it so that better pricing and efficiency was achieved.

Ensuring the future financial flexibility of the firm and optimal support of SAP’s growth strategy is one of the key tasks of its German-based global treasury unit. The new credit facility refinancing and reorganisation project was launched in summer last year and was finalized by year end, delivering lower financing costs for the next five years on 22.5 bps margin for the credit facility, as against 45 bps previously. Two separate one-year extension options are also part of the agreement for later activation if the company sees fit, ensuring ongoing lower financing costs.

The revolving credit facility is considered the second pillar of SAP’s financing strategy and is defining the relationship between SAP and its core banks. It is a flexible credit facility which is used only as a backup source of liquidity. The facility was first set up in 2004 and has never been drawn on. Having it as a backup source of external funds for the corporation, however, in terms of providing funding for general corporate purposes, is considered to be an important backstop and a key duty for treasury to deliver.    

Reorganising the Credit Facility: Tiering Participating Banks

One of the key challenges when reconstituting SAP’s revolving credit facility was to introduce a new tiered structure for the numerous participating banks. The global treasury department decided on a two-tiered approach with differentiated access.

The MNC openly communicated the purpose of the new structure to the banks, which was to first and foremost deliver a better mapping of credit commitment levels and access to treasury business. SAP told the banks what it thought was the best tier for them based upon their expertise and what best suited the firm’s future business relationship.

SAP anticipated some resistance on the banks’ part to its proposal but as it turned out the arguments in favour of this two-tiered approach were fully understood and supported by the respective banks. The negotiations completed in November 2013. The tiered structure, up and running this year, additionally helps to set clear expectations for the banks in regard to ancillary business opportunities.

Project Benefits

With a tenure of five years and two separate one-year extensions available, SAP SE’s treasury unit believes that it has successfully secured lower financing costs for the foreseeable future. The size of the credit facility has been increased from €1.5bn to €2bn and the credit margin reduced from 45bps to 22.5bps. The yearly commitment fee (35% of credit margin) has consequently been reduced by 50%.  

The new credit facility for SAP AG is now up and running. The existing core bank group was slightly adjusted in order to better support SAP’s global growth strategy, especially in some fast growth emerging markets in Asia and elsewhere where additional banks were added. As one example, a Chinese bank that SAP cannot name, was successfully invited to facilitate its operations in Asia and is now doing so.   

The revolving credit facility transaction was very well perceived in the banking sector and achieved one of the lowest credit margins for a German company.

A total of 27 banks from Europe; the Americas; and Asia took part in the project, leading to a significant oversubscription of more than 60%. SAP achieved a stronger pricing than other German A-rated corporations in 2013 based upon the strong demand expressed for its renewed credit facility.

The successful refinancing of SAP’s syndicated revolving credit facility demonstrates SAP’s strong financial position and excellent reputation in the capital markets. It is also an indication of the skill of its treasury department in delivering ready finance to the MNC should it ever be needed.

75 views

Related reading

Annie Lamngoc Sebergsen
Richard Hartung