Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares are currently down 0.73% amid news the company is interested in Whitehaven Coal Ltd (ASX: WHC) debt.
Soul Pattinson is a large investment house in Australia with a portfolio of ASX shares, unlisted businesses, debt instruments, and property. It has been ramping up its credit/debt exposure following the significant increase in interest rates locally and globally.
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Debt interest
According to the Australian Financial Review, Soul Pattinson is in talks with Whitehaven Coal about the ASX coal share's 'debt stack'. Whitehaven is currently in the process of buying the Blackwater and Daunia coal mines in Queensland for US$4.1 billion.
The AFR reports Whitehaven initially used a US$900 million bridging loan from Bank of America and Jefferies to win the bidding process, but the ASX coal share is now looking to bring on more creditors, with Soul Pattinson expected to be one of the potential lenders. A Whitehaven spokesperson declined to comment to the AFR.
This isn't the first time Soul Pattinson has shown interest in debt financing an ASX coal share. Last year, Soul Pattinson was involved in the financing of the Stanmore Resources Ltd (ASX: SMR) purchase of the majority stake of BHP Mitsui Coal.
This is an interesting move by Soul Pattinson considering its close affiliation to (and its stake in) New Hope Corporation Limited (ASX: NHC).
Whitehaven Coal reportedly beat mining services company BUMA Australia in the last part of the auction.
What does this mean for Whitehaven Coal?
The upfront consideration of the deal is US$2.1 billion, payable on completion. Then there would be payments of US$500 million, US$500 million, and US$100 million in separate tranches of deferred consideration payable on the first, second, and third anniversary of the completion.
There are contingent payments of up to US$900 million, comprised of three annual payments, depending on realised pricing exceeding agreed thresholds. Annual contingent payments are capped at US$350 million.
Whitehaven said the deal is "highly attractive and earnings accretive" and it "provides significant value upside including strategic growth option". It also "transforms Whitehaven into a metallurgical coal producer".
Share price snapshot
Since the start of the year, the Whitehaven Coal share price is down 22% and the Soul Pattinson share price is up 21%.
