SoftBank bond offer defies predictions in fight for Sprint

Wed Apr 17, 2013 11:03am EDT

April 17 (IFR) - Dish Network's rival bid for Sprint has failed to cool investor enthusiasm for the new USD2bn high-yield bond from Japan's SoftBank, which has its own plan to buy the US telecoms carrier.

The SoftBank bond, whose proceeds in part are intended to fund the acquisition, is reportedly getting a solid welcome from investors on its current roadshow.

Talk on both the euro and US dollar tranches of the deal emerged on Wednesday morning at 4.5%-4.75% - tight of initial price thoughts of 4.625%-4.875%.

Though not confirmed by any underwriters on the deal, two investors said they heard the offering was already well oversubscribed. The deal is being marketed as a seven-year bullet senior notes offering.

Demand indicates that the deal is defying predictions that SoftBank would have to sweeten the terms or postpone it altogether after Dish made its surprise bid for Sprint Nextel on Monday.

Dish offered to buy Sprint for USD25.5bn in cash and stock, outbidding SoftBank for the wireless telecom provider by more than USD5bn.

But it seems as though the market is betting on a SoftBank victory.

"If SoftBank wants to buy this company," one investor said, "it will buy this company."

MAKING IT WORK

SoftBank's bond is not contingent on the Sprint Nextel acquisition. And even if it were to lose out to Dish, investors would still be in a good position with the deal.

The company would then remain Baa3/BBB rated, and investors would end up owning a very attractive investment-grade rated bond priced with a high-yield coupon.

"While unlikely, if the Sprint deal doesn't go through, then I'll own something where the company has more cash and is investment-grade rated, and I'll sell it at 105, 107, 110," said the investor.

He said the notes would trade up to reflect the ratings, at which point high-yield accounts would be able to sell to investment-grade buyers.

But the expectation is that SoftBank will ultimately win out, even if it has to increase its offer for Sprint.

"I think with SoftBank and Sprint together, you see some strategic synergies," another investor said.

"That story makes sense. A Dish deal with Sprint seems almost more out of necessity. And as a Sprint bondholder, I think it makes more sense to go with SoftBank. They've got deep pockets, experience in the telecom space and with managing vast quantities of spectrum."

The first investor said that the Japanese telecoms giant would be able to use profits from its currency hedge on Sprint to increase its acquisition bid.

He said that any additional debt raise was unlikely to have a further negative impact on the ratings, estimating an uptick in leverage of just 0.2-0.3 times.

S&P, which has the company on CreditWatch negative, said its ratings will likely be lowered to a high-yield BB+ (from its current investment grade rating of BBB) if the transaction proceeds. Moody's also placed its Baa3 issuer rating, the lowest investment-grade rating, under review for possible downgrade pending SoftBank's acquisition of Sprint.

Deutsche Bank is global coordinator for the SoftBank bond.

Deutsche Bank, BofA Merrill, Barclays, Credit Agricole, Mizuho, Morgan Stanley and Nomura are joint bookrunners on the dollar tranche, while Deutsche Bank, Barclays, Credit Agricole, Mizuho and Nomura are joint bookrunners on the euro tranche.

US dollar books close today at 5pm EDT, with euro books closing tomorrow at 11am BST. Both tranches are pricing tomorrow morning EDT time.

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