Wind PIKs soar on Vimpelcom refinancing plans
LONDON, March 19 (IFR) - Italian telecoms company Wind saw its payment-in-kind bonds soar on Wednesday after its Russian owner Vimpelcom announced plans to refinance the debt, bringing relief to investors who had feared interest payments would be missed.
The 12.25% US dollar and euro denominated 2017 PIK instruments amounting to EUR1.2bn-equivalent jumped as much as four points and were bid between 103 and 106 in cash terms following the news, according to Tradeweb.
Mobile operator Vimpelcom must wait until April 2 for the consent from lenders, but the market reaction signals that the refinancing will go ahead after months of uncertainty that has caused huge volatility in the price of the deeply subordinated debt.
"It sends a really positive signal to investors after months of fears that the company would not refinance in time for the first coupon payment," one London-based investor said.
Talk of a jumbo refinancing first surfaced last year amid fears the company's capital structure would make it difficult to pay the first cash coupon on the PIKs due in July 2014.
Hopes that Vimpelcom would use a new USD4bn loan facility to fund the refinancing sent the PIKs above 106 in September, but they fell again on talk the proceeds might be used to repay the EUR2.7bn-equivalent 11.75% 2017 senior notes instead.
The Russian owner will stump up EUR500m of its own cash to finance the PIK redemption - another move that gave the market a boost of confidence - and will also issue around EUR800m of additional subordinated debt at the Wind subsidiary.
Vimpelcom bought Wind in 2011 in a deal which also saw it take a 51% stake in Egypt-based Orascom Telecom for USD6bn. It has a total net debt of USD22.6bn, according to its latest earnings report, of which Wind's debt accounts for USD14.5bn.
Although Barclays said the company would have to pay a EUR233m redemption premium on both the subordinated and PIK bonds, it will still save significantly on interest costs.
"Overall, we view this as a positive transaction for the Wind capital structure as it should reduce interest expenses, enabling the company to generate positive free cash flow going forward."
The strategists estimated those annual interest savings could be as much EUR170m, assuming an 8% coupon on newly issued debt.
In addition, Vimpelcom said the refinancing would also boost cash flow generation, help it to deleverage and extend its maturity profile.
Wind plans to extend the maturity of its bank debt, of which EUR360m matures in November 2016 and EUR2bn in November 2017. No changes are anticipated for the existing senior secured notes, the Barclays strategists said.
The only negative implication they noted is a moderate increase in leverage through the subordinated level of the capital structure.
"On a pro-forma basis we calculate a 0.5x increase in subordinated leverage to 5.2x from the current 4.7x." (Reporting by Josie Cox; Editing by Natalie Harrison)
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