(CORRECTS to add dropped word in quote in graf 11)
* Massive order book suggests bigger M&A deals possible
* Unprecedented demand but unique credit story
* TMT remains most active hunting ground for M&A
By Robert Smith
LONDON, April 23 (IFR) - Numericable and Altice together attracted more than US$100 billion in orders for their 12 billion equivalent deal, an unprecedented level of demand for high-yield bonds that could usher in a new era of jumbo leveraged acquisitions in Europe.
The final book on the 7.9 billion-equivalent Numericable operating company bond was more than 10-times subscribed, according to a banker on the deal, while books on the riskier 4.15 billion-equivalent Altice holding company bond closed more than seven-times covered.
The banker said the largest single order was a massive 5.5 billion - numbers that are opening eyes regarding the scale of deals that might now be possible.
"It's changed the market's idea of what's possible in the European leveraged debt markets," said Ray Doody, head of acquisition leveraged finance EMEA at JP Morgan.
"The paradigm of acquisition finance has changed, and I believe that for the right credit in the right sector with sensible leverage, it'd be possible to raise debt packages north of 30 billion dollars - which, when aligned with sponsor equity, could make 40 billion dollar deals feasible."
While the scale of demand is significant, the deal has a number of unique features that makes it very attractive to debt investor.
"It proves that liquidity is there, but this is a deal where all the stars have aligned in a sector everybody likes," said another banker on the deal.
Technology, media and telecoms (TMT) has historically been the largest and best-understood sector in the European high-yield market.
In November 2000 TMT bonds accounted for half of Bank of America Merrill Lynch's euro high-yield index. While the market has become more diverse since then, TMT still accounted for 20% of the index in February 2014.
Mitch Reznick, co-head of credit at Hermes Fund Managers, points out that while 12 billion is a substantial amount of high-yield debt, it has been absorbed fairly easily because the deal ticks many of the right boxes for credit investors.
"Although it brings us closer to the jumbo deals of the pre-crisis period, this deal is a financing for a moderately levered telco in a well-understood market by a well-known company that does not need to prove its ability to grow into an outsized capital structure."
Altice and Numericable have tapped the bond market frequently over the past two years, and the new deal leaves Altice with moderate total leverage of 4.1x Ebitda.
Furthermore, company founder Patrick Drahi has a strong track record of raising profit margins in cable and telco businesses across the globe, while Altice's CFO Dennis Okhuijsen is widely known to investors as he was group treasurer of Liberty Global - a stalwart of the high-yield market.
Despite these unique characteristics, Doody at JP Morgan believes that deals of this scale could be possible for other European businesses in different sectors.
"TMT will likely be the leader for jumbo non-investment grade deals, but I don't think this size of debt raising is limited to telecoms and cable," he said.
"There are lots of other industries, such as healthcare and consumer, where if deals are sensibly levered, then this scale of debt raising would be feasible."
While jumbo deals in other sectors might be possible, cable and telecoms remains Europe's busiest hunting ground for European M&A.
This year has already seen Liberty Global's acquisition of Dutch cable firm Ziggo as well as Vodafone's buyout of Spanish cable firm ONO.
Altice and Numericable's victory in the battle to buy SFR came at the expense of Bouygues, and many in the market believe that Bouygues may now look to exit the French mobile space given that it only has 15% market share. If rival Iliad merged with Bouygues, it could see that market go down from four to three-players.
European antitrust authorities could put a brake on future consolidation, however.
"There are a lot of four-player markets crying out for consolidation in Europe, but participants are likely going to wait to see how Germany plays out first," said Reznick at Hermes.
"If it's approved, the E-Plus/Telefonica Deutschland deal will serve as a test case for how a large market can be reduced to a three-player market the extent of the remedies required to satisfy the European regulators." (Reporting by Robert Smith; Editing by Alex Chambers, Marc Carnegie)