RLPC-Ziggo acquisition financing boosts loan market

LONDON Fri Jan 31, 2014 9:59am EST

LONDON Jan 31 (Reuters) - Liberty Global gave Europe's leveraged loan market a major boost with a 3.7 billion euro ($5.02 billion) financing to back its acquisition of Dutch cable company Ziggo that marks a departure from its traditional approach to raising debt.

The loan market has become increasingly attractive as borrowers take advantage of strong technical conditions following a dearth of new money deals in 2013 to secure loans on aggressive terms, as cash-rich investors and banks compete to put money to work.

"The loan market is back," a senior leveraged loan banker said. "It is slightly cheaper than the bond market and it doesn't have restrictive non-call periods. Liberty is comfortable with some covenants so there is no reason to go the bond route. The loan market is here, it is more straightforward and flexible."

A second leveraged loan banker added: "Liberty is opportunistic and wants all markets to be big and meaningful. The loan market has matured a lot in Europe and has a depth to it which it didn't have 12 months ago. The size of new issue that can be raised is attractive."

Liberty, controlled by US tycoon John Malone, frequently taps the high-yield bond market and its decision to use the loan market using a large lending group differs from its approach on a number of earlier acquisitions.

The company's purchase of German cable firm Kabel BW in March 2011, for example, was financed with a 2.25 billion euro high-yield bond issue through three banks, while its acquisition of Virgin Media last year consisted of a loan and bond financing using five banks. The new deal involves 13 banks, with Ziggo as the borrower.

Credit Suisse and Bank of America Merrill Lynch are global co-ordinators, as well as joint bookrunners and mandated lead arrangers alongside ABN AMRO, Credit Agricole, Deutsche Bank, HSBC, ING, JP Morgan, Morgan Stanley, Nomura, Rabobank, Scotiabank and Societe Generale.

"Liberty wants to build a better relationship with a larger lending group on Ziggo, which makes the loan product more attractive as it is easier to keep up with who is in the debt rather than the bond market, which is more liquid and credits are traded much more frequently," an investor said.

CURRENCY SPLIT

The 3.735 billion euro loan is split between a euro tranche guided to pay 275bp-300bp and a US dollar tranche at 250bp-275bp. Both are offered with a 0.75 percent floor, a 99.75 OID and 101 soft-call for six months.

The loan has one leveraged covenant, covering net senior leverage and total financial leverage.

By opting for a loan-dominated package, Liberty will also benefit from better economics as it will pay a ticking fee until the deal is done, as opposed to paying a full coupon on bonds in escrow. The ticking fee kicks in after two months and totals around half of the margins.

"The loan product is much easier when there are longer tails on closing as bonds have to go into escrow," a third leveraged finance banker said.

Despite mixed opinions on ticking fees, aggressive margins and only one covenant, loan investors are expected to put in large tickets by a February 4 deadline, eager to put some of their cash pile to work.

"The credit is great but the yield is very, very low, which could make it a tricky one for some funds. There is a lot of liquidity in the market and ultimately it will fly out of the door, but it is aggressive," a second investor said. ($1 = 0.7373 euros) (Editing by Christopher Mangham)

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