CORRECTED - UPDATE 2-Kabel Deutschland refinances ahead of 1st dividend

Wed Jun 8, 2011 12:23pm EDT

(Corrects last paragraph to show the company's U.S. owner was Providence Equity Partners, not Providence Partners)

* Includes 300 mln euro high-yield bond, 500 mln euro loan

* Shares drop after results, news CFO will go next year

* KDG will reduce interest costs, extend maturity profile

* Refinancing helps preparations for first dividend payment

By Natalie Harrison and Nicola Leske

LONDON/FRANKFURT, June 8 (Reuters) - Lossmaking Kabel Deutschland (KDG) promised investors a net profit and a dividend payout for this year as it launched an 800 million euro ($1.2 billion) debt refinancing that will reduce its interest costs.

Under the refinancing plan, the company will pay off existing debt including a 515 million euro Payment-In-Kind (PIK) loan maturing in 2014 from the proceeds of a new 300 million euro seven-year senior secured high-yield bond and a 500 million euro loan of the same maturity. That move will reduce annual interest costs by some 11 million euros.

Shares in Germany's largest cable TV company fell sharply after the results, outlook and refinancing news from KDG, which launched on the stock market in 2010 and has seen its shares climb 30 percent this year.

Analysts and investors said the company's proposed dividend of at least 1.50 euros a share was disappointingly small, its results were unimpressive, and that they had hoped for a more positive outlook.

"Scope for consensus estimates going up looks limited. We see few positive triggers ahead and believe it is unlikely that the share will outperform against peers," WestLB analysts said.

Some traders also cited Tuesday's news that the company's Chief Financial Officer would not be renewing his contract next year as a reason for the share price fall.

The stock was down 5.4 percent at 42.1 euros at 1145 GMT.

The Munich-based company expects sales to grow 6.25 to 6.75 percent and adjusted core profit to be in a range of 790 million euros ($1.16 billion) to 800 million in the year to March 2012 up from 729 million last year.

KDG also expects a positive net result this year and that it will likely propose a dividend of at least 1.50 euros per share for the current fiscal year.

STRONG DEMAND FOR CABLE

Despite the weaker share price, the cost of protecting KDG's debt against default fell slightly due to the extended debt profile. Five-year credit default swaps tightened by about 7 basis point to 286 bps, Markit data showed.

The company is expected to draw strong demand for its bond thanks to strong interest in the asset class as investors chase higher yields, and for cable credits in general because of their strong cash flows.

"The company is getting rid of expensive debt in the form of the PIK. And why not? The bond market is so hot right now," said one high-yield syndicate banker working on the transaction.

High-yield bond supply has already hit 30 billion euros year-to-date, which is about 70 percent of the record 42 billion euro supply in 2010 as a whole, according to Thomson Reuters data.

The bond is expected to be rated towards the higher quality end of the speculative-grade rating scale at Ba2 by Moody's and BB- by S&P.

Goldman Sachs, Deutsche Bank, ING and Morgan Stanley are jointbookrunners on the bond. The company will meet with investors over breakfast in London on Thursday and plans to price the bond on Friday and the loan tranche next week.

In addition, the company is extending the maturity of a 100 million revolving credit facility (RCF) which matures in March 2012 to 2015, although the overall size of the 325 million euro RCF will remain unchanged. KDG will also repay part of its Term Loan A.

The original 480 million PIK loan, issued in May 2006, had increased to 715 million by the end of 2010 but fell back again to 515 million after the company paid off a chunk of the debt in March.

The initial public offering raised 759 million euros for KDG's U.S. owner Providence Equity Partners, valuing the company at 5 billion euros including 3 billion euros of debt. (Editing by Andrew Callus) ($1=.6817 Euro)