NEW YORK, Aug 13 (TRPLC/IFR) - Charter Communications is
expected to revisit the leveraged loan market as soon as
September, and may also try to sell a high-yield bond, to raise
the remaining US$3.9bn it needs to buy Time Warner cable assets.
Charter more than halved the size of its senior secured
institutional facility to US$3.5bn from US$7.4bn last Friday,
opted for a seven-year term loan rather than two term loans with
different maturities and increased pricing.
One leveraged finance banker close to the situation said the
decision to cut the size of the deal was due to a combination of
softer markets, and the issuer's sensitivity around higher
financing costs following a pick-up in volatility shortly after
the deal launched to investors.
A repricing in the high-yield market has now fully filtered
through to the loan market, the banker said.
"The company doesn't really need the money for six months so
it can be patient," the banker said.
The cable giant is now considering its options to finance
the rest of its acquisition of Time Warner Cable (TWC)
subscribers, which rival Comcast is selling to help get
regulatory approval for its planned US$45bn purchase of TWC .
Those choices include revisiting the loan market or raising
cash from a unsecured high-yield bond, most likely in the fall,
the banker said.
The hope is that the smaller deal size will make it more
manageable to term out risk.
"Banks like to underwrite deals like Charter because
everyone wants to own cable," said another leveraged finance
"Investors know the name, and it's not a question of
evaluating Charter risk."
Goldman Sachs is lead left on the transaction, joined by
other bookrunners Bank of America Merrill Lynch, Credit Suisse
and Deutsche Bank.
FINDING A LEVEL
Still, the deal's struggle is a worrying sign as there are
US$69bn of leveraged loans in the pipeline, according to Thomson
Reuters LPC, and investors are certain to continue to make the
most of the volatility by demanding higher prices on deals.
Albertsons, for example, sweetened pricing on US$4.6bn of
institutional term loans backing its acquisition of supermarket
operator Safeway earlier this month.
"Both are good deals," said a loan investor, referring to
Albertsons and Charter. "Investors just expect to be paid more."
The first banker said issuers would stay nimble, looking to
tap either the loan or the bond market depending on what offers
the best value in the weeks ahead.
"The loan market has very strong technicals, driven by the
CLO bid, but there is also a lot of supply. That could mean the
bond market could find equilibrium faster than loans," said the
banker. "In this market, it's all about finding a level."
Charter and Albertsons are not the only companies that are
having to adjust to different pricing levels.
On the loan side, a number of opportunistic deals have
recently been pulled in response to volatility in the equity and
high-yield markets. They include a US$380m financing backing a
dividend recapitalization for packager HCP Global Limited, and
repricing attempts for education technology company Blackboard
and precision engineering firm SeaStar Solutions.
Well services company Expro also reduced its deal to
US$1.45bn, removed a delayed draw tranche and upped pricing.
Bond deals for the buyout of Safeway and another for Jupiter
Resources - backing Apollo's acquisition of Encana's Bighorn
assets - have been pushed back to September.
And another acquisition deal, for NCSG Crane & Heavy Haul
Corp, not only priced a week later than expected but also came
200bp wide of whispers.
One private equity source estimated capital costs had risen
by at least 100bp over the past month - but said it really boils
down to individual credits.
Factors taken into account include the size of the deal, the
length of commitment, ratings, and whether the credit is already
known in the market, he said.
The second banker stressed fairly aggressive deals are
still getting done with structural changes that benefit
investors such as extended call protections and Most Favored
Nation clauses (MFN).
The banker pointed to a loan and bond deal from BWAY which
priced last week and partly financed a dividend to shareholders.
"BWAY had very aggressive terms, but came unscathed. Will we
be more careful? Absolutely. Does it mean we offer 101
protection for a year now? Probably. Add MFNs? Most likely,"
said the banker.
"Banks have to be careful and underwriters are under
pressure but I'm not aware of anything disastrous that has been
Some commitments, for the buyout of Acosta by Carlyle, for
example, was only signed in the past month when markets were
already choppy - showing banks are holding their nerve.
The hope is that investors will now start to see value. The
yield-to-worst on the high-yield index neared 6% last week, but
has since retraced to 5.59%, according to the Barclays index.
From a borrower's perspective, funding costs remain cheap.
"When you see that the yield on a bond is lower than the
leverage on a deal you know that the market is frothy," said
another private equity source.
"The market was well overdue for a correction."
(Reporting by Natalie Harrison, IFR, and Lisa Lee and Michelle
Sierra, TRLPC; Editing by Jonathan Methven)