UPDATE 2-Time Warner Cable bonds snap tighter on Comcast deal

Thu Feb 13, 2014 12:43pm EST

By Danielle Robinson

Feb 13 (IFR) - The bond spreads of Time Warner Cable tightened sharply Thursday, as did the cost of insuring the company's debt against default, after news it would be acquired by Comcast.

TWC's bonds had tightened by 145bp by midday on Thursday on word of the US$45.2bn all-stock deal merging the two largest US cable operators into a media colossus.

Its 4.00% 2021s were trading at 76bp bid, in a whopping 145bp from 221bp on Wednesday before the deal was announced.

"TWC bonds were trading at junk and now they are looking at the possibility of an A rating," Moody's senior analyst Neil Begley told IFR. "It's amazing."

The deal seems to have foiled the hopes of cable pioneer John Malone, who had waged a bitter eight-month battle to acquire TWC by Charter Communications, whose biggest shareholder is his Liberty Media Corp.

Bondholders had feared a takeover by double-B rated Charter would have over-leveraged the new entity and sent some US$25bn of TWC bonds into junk-ratings territory.

"Comcast is just a much better credit than Charter," said one syndicate manager. "Simple as that."

Comcast is rated A3/A-/A- by Moody's, S&P and Fitch.

"This deal won't change Comcast's rating," said Begley from Moody's, which announced it was taking TWC's Baa2 rating off review for downgrade and putting it on review for upgrade.

"It's more a question of whether we would raise the TWC rating," he said.

The deal still needs regulatory approval.


TWC's credit default swaps - the cost, in other words, of insuring the company's debt against default - also tightened dramatically on Thursday in response.

Its five-year CDS tightened around 108bp - a whopping 60% - to around 74bp in another sign of the favorable reaction to the deal, which caught many in the market by surprise.

Malone's Charter Communications had been dialling up the pressure to get TWC in recent days.

Charter offered US$132.50 per share in a deal that would have seen the combined company's leverage soar from around 3.5 times earnings to seven times.

After TWC chairman and chief executive Robert Marcus and his management team rejected the Charter offer outright, Charter effectively declared war by nominating 13 independent directors to wipe out TWC's existing board.

That move would have meant a full-scale proxy battle at TWC's shareholder meeting in May.

Begley of Moody's said the tie-up with Comcast would likely generate more than double the cost savings of a deal with Charter.

"We think the combined company could benefit from as much as US$1bn of cost savings, because Comcast's cable operating cash flow margins were about 500bp greater than TWC's last year," he said.

The Comcast-TWC deal could also reap major commercial opportunities, as it will create a customer reach that would rival that of telecom giants AT&T and Verizon.

Because Comcast's acquisition is intended to be an all-cash deal, some leveraged finance bankers will miss out on the fees from the debt that likely would have been needed to push through a deal with Charter.

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Comments (1)
Jzhou wrote:
We have one cable provider in town TW, as small business owner, i can not see any company without a deep pocket will spend million, million dollar to put fiber cable all over town… i have no problem their merge, as long as keep price in reasonable and bring upload speed, oh, i wish they can take off some channels on my package as OWN, BET, if people want to watch,paid it go ahead, i just have problem TW put those channel into basic package, forcing people to pay for it

Feb 13, 2014 10:56am EST  --  Report as abuse
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