UPDATE 1-Numericable and Altice announce 10bn-equivalent bond package

Mon Apr 14, 2014 9:05am EDT

* Deal dubbed "high-yield's Verizon"

* Altice bond uses complex holdco structure

* Bonds to price after Easter break, demand expected to be strong (Adds quotes, background)

By Robert Smith

LONDON, April 14 (IFR) - Numericable and Altice will test the limits of the high-yield bond market later this month with a 10bn-equivalent bond financing for their acquisition of French telecom unit SFR from Vivendi.

The jumbo bond package, which has been dubbed "the Verizon of the high-yield market", will be split into 6.04bn-equivalent of bonds at the Numericable operating company level, and 4.15bn-equivalent of bonds at the Altice holding company level. Both will be split into euro and dollar tranches.

These kind of sizes tend to be seen in the investment-grade market, which has shown great depth for M&A financing in the past, but they are far less common in high-yield.

As IFR reported on Friday, the Numericable bond is split into five-, eight- and 10-year tranches, while the Altice bond is solely eight-year debt.

The Numericable bonds are senior secured first lien notes, split into five-year non-call two, eight-year non-call three and 10-year non-call five tranches.

The five-year bond will have 500m and US$920m tranches, while the eight- and 10-year bonds will both be split into 1bn and US$2bn tranches.

The Altice bonds are eight-year non-call three senior notes, but the dollar and euro split is yet to be determined.

Despite its large size, demand for the deal is expected to be fierce. A banker close to the trade said on Friday that many investors were already putting in orders, even though the bond had not yet been officially announced.

"People are already saying this could be the Verizon of the high-yield market," he added.

Verizon made history in September 2013 with a record-breaking US$49bn deal that received more than US$100bn of orders.

The liquidity in the European high-yield market is deepening, with European high-yield bond funds seeing an unbroken streak of weekly inflows for the past seven months, according to JP Morgan data.

Italy's Wind Telecom 3.75bn-equivalent senior bond deal that priced last week is testament to this much improved liquidity, with one banker saying that orders for the 1.75bn euro tranche alone topped 10bn.

COMPLEX STRUCTURE

The deal's complex structure will require intense credit work for potential investors, however. Numericable's bond offering memorandum is more than 650 pages long, while the Altice offering memorandum runs to nearly double that at more than 1,100 pages.

The Altice holdco bond is particularly complex, as it not only sits above the new Numericable-SFR business but also Altice International, which has operations in far-flung geographies such as Israel and the Dominican Republic.

The Numericable-SFR business will have net debt of 11.7bn-equivalent, while Altice International has net debt of 3.5bn-equivalent. Investors will have to be confident that there will be enough cash left over after servicing this debt to pay the coupons on the new 4.15bn-equivalent debt at the holdco level.

Altice estimates that the holdco will incur cash interest expenses of 325m, but that 967m of cash from Numericable-SFR and Altice International will be left over to service this.

Investor meetings start today in London, with a lunch hosted by Altice's founder Patrick Drahi. Altice's CEO Dexter Goei and its CFO Dennis Okhuijsen will also be in attendance, as will Numericable's CEO Eric Denoyer and its CFO Thierry Lemaitre.

A second meeting in London will follow on Tuesday morning, before the roadshow moves to the United States from Tuesday to Thursday. A final day of meetings will be held after the Easter break on April 22 in Paris and Frankfurt, with pricing of the deal expected on April 23.

JP Morgan is lead-left bookrunner on the Numericable opco bond, while Goldman Sachs is lead-left on the Altice holdco bond. The pair are global coordinators on both tranches, along with Deutsche Bank. Deutsche Bank is left-lead on the EUR6.55bn-equivalent loan component on the deal. (Reporting by Robert Smith, Editing by Helene Durand and Julian Baker)

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