(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
"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
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
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
European antitrust authorities could put a brake on future
"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
"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