Early pricing levels emerge on jumbo Altice/Numericable bond

Tue Apr 15, 2014 8:50am EDT

* Price whispers emerge on 10bn bond deal

* Deal priced to succeed say market sources

* Debt services comfortably covered at holdco

By Robert Smith

LONDON, April 15 (IFR) - Numericable and Altice held the first day of investor meetings for the 10bn-plus high-yield bond on Monday, and gave early indications of pricing levels on the dual-currency deal.

Early price whispers of a 6.25%-6.5% yield were given on the Numericable operating company's eight-year US dollar tranche, according to a source present at the meeting, with the euro tranche 25bp tighter.

The source added that the five-year tranche will most likely come 75bp inside the eight-year, for mid-5% yield pricing, with the 10-year tranche about 25bp wider.

Above the 6.04bn-equivalent Numericable opco debt will sit 4.15bn-equivalent of eight-year bonds issued at the Altice holding company level.

The source said that this is expected to come 200bp wide of the opco eight-year, meaning the holdco bonds are expected to price at or above 8% yields.

Official price talk is not expected until after Easter, however, and many high-yield issuers are able to significantly tighten levels between early marketing and official talk.

Some bankers have already dubbed the deal "the Verizon of the high-yield market", and much like that firm's record-breaking US$49bn investment-grade bond priced last year, Altice and Numericable are expected to pay up to clear so much paper.

"At 8%, this deal looks very cheap versus Wind on a leverage basis," the source added.

Italian telecom firm Wind priced 3.75bn-equivalent of seven-year senior paper last week at 7% on the euro tranche and 7.375% on the dollar tranche. Wind's net debt is 5.2x Ebitda, more than a turn higher than the 4.1x expected leverage at the Altice holdco.

A banker on the deal said, however, that this 4.1x figure uses 100% of Numericable-SFR's Ebitda, whereas Altice will only own 60% of the combined French business. When adjusted for this, leverage is slightly higher, at around 4.5x.

"Another advantage Altice has over Wind is that it is a publicly traded company, and the hard market cap gives investors the comfort of a known equity cushion," the banker added.

DEBT SERVICE

The Altice holdco not only sits above Numericable-SFR, however, but also Altice International, which has operations in far-flung geographies such as Israel and the Dominican Republic.

Bond investors have to be confident that there will be enough cash left over after servicing both companies' debt piles in order to service the billions of new debt at the holdco.

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.

The source also said he was confident that the covenants on Numericable and Altice International's bonds would not trap this cash. Restricted payment (RP) baskets can sometimes prevent companies from upstreaming cash, but this is not expected to happen here.

"The existing Ebitda restricted payments covenants are loose," he said.

"Ebitda is growing very rapidly, so the RP basket will just get bigger and bigger."

The larger question, however, is over debt service before the acquisition is closed, when Altice has access to the new combined Numericable-SFR group's cashflow. While Altice expects the acquisition to close in the fourth quarter of 2014, the bonds will remain in escrow until April 30 2015.

If regulatory approval stalls, this could make for a year of debt service without the full benefits of Numericable-SFR's cash flow.

The source said that the structure of the deal gives comfort if the acquisition stalls, however.

"There's a 250m cash overfund at Altice, which in conjunction with a 200m revolver will more than tackle the 325m annual interest," he said. (Reporting by Robert Smith; Editing by Philip Wright)

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