Greece's Wind Hellas sounds out debt investors

Fri Aug 8, 2014 11:09am EDT

* Greek telecoms firm eyes bond market return

* Fresh debt would raise cash for expansion

* Investors and bankers deem deal a "tough sell"

By Robert Smith

LONDON, Aug 8 (IFR) - Wind Hellas has been sounding out investors on a possible return to the debt markets, nearly half a decade after the Greek telecoms firm badly burnt its creditors in a messy restructuring.

The company, which is debt-free at present, is looking to raise cash to fuel future growth. It could also use the money for M&A, having recently made a joint bid with Vodafone to take over pay-TV, internet and fixed-line provider Forthnet.

Wind Hellas mandated Citigroup to hold a series of meetings with high-yield bond investors towards the end of July, with the view that a deal might follow, subject to market conditions and the management's preference. Management met investors on July 24, 25 and 28, seeing around 50 accounts, according to a banker close to the deal.

Wind Hellas mooted raising a EUR175m five-year non-call two secured bond, according to two sources that attended the meetings. The deal would leave the company with 2.0x leverage, according to one high-yield investor.

As the company is debt-free, it is under no pressure to raise the bond.

"The company has a capex plan to fund and there's a spectrum auction coming up in Greece," said the banker.

"They don't need cash right now and the market is not at its strongest, but they got good support, so they're on a strong footing to come to market when they feel it's appropriate."

The iTraxx Crossover CDS index was bid below 250bp on the morning of Wind's first meeting but had ballooned out past 300bp on Friday. Meanwhile, US high-yield bond funds and ETFs also saw a record outflow of USD7.1bn this week, according to Lipper.

"Five or six weeks ago they might have had a deal, but this is a case where the market has really turned against them," said the investor.

"I can't really see people being interested now unless they offer double-digit yields."

TOUGH SELL

Wind Hellas is the third largest mobile operator in Greece, after OTE and Vodafone, with around a 25% market share. The bond was pitched as fuelling M&A-backed expansion of its fixed-line business, however, according to the investor.

"Wind and Vodafone both have a fixed business, and by buying Forthnet they could create a shared, large fixed operator in Greece," he said.

"It's an interesting proposition, but if I was them I'd focus on their mobile business. Despite the large market share, they have thin margins in mobile due to low-value customers and under-investment in their network. A bit more investment in mobile could really boost Ebitda."

The investor also described Forthnet as "financially stressed", pointing out that it had EUR325m of bank debt that is underwater and another EUR86m of transponder leases.

A telecoms banker also agreed that without boosting its main business, a bond would be a "tough sell".

"It's not a good underlying credit and it generates very little cash," he said. "Who knows though, maybe the story around network investment will get people interest, or perhaps people will see some upside in a Greek recovery."

TROUBLED HISTORY

The fact that Wind Hellas badly burnt bondholders in its restructuring is another obstacle to the deal.

Senior bondholders took control of the company in December 2010 after a long-running restructuring process. Subordinated bondholders suffered massive losses, however, and a group of creditors led by SPQR Capital brought action in the US courts against the former owners.

"People definitely have strong memories of the restructuring, but they looked at the proposal in hand and gave their feedback," said the banker on the deal.

The six funds that own the business - Mount Kellett Capital, Taconic Capital Advisers, Providence Equity Capital, Anchorage Capital Group, Angelo Gordon and Eton Park International - have also reportedly tried to raise debt from other sources in the recent past.

"The company is owned by hedge funds and they went round some of the private debt guys earlier this year to see whether they could put a loan deal together," said the telecoms banker.

"I think they got a pretty frosty reception though. At the very least, they were offered rates that were deeply unappealing."

The banker on the deal said he was not aware of any proposed private debt deals. (Reporting by Robert Smith, Editing by Helene Durand)