* Liberty Global announces GBP2.3bn four-part bond financing
* Virgin Media leverage to rise only modestly
* Bankers upbeat about M&A outlook
(Recasts with M&A outlook, adds quotes, loan details)
By Natalie Harrison
LONDON, Feb 6 (IFR) - Financing plans for the
multibillion-pound acquisition of British cable group Virgin
Media emerged on Wednesday and buoyed hopes that large-scale
takeovers are back as companies grow more confident about the
economy and take advantage of cheap debt.
On Tuesday, Michael Dell struck a deal to take Dell private
for US$24.4 billion in what is the biggest leveraged buyout
since the financial crisis, while Liberty Global (LGI) said it
would buy Virgin Media for about US$15.75 billion in stock and
"To have two major M&A deals in one week is unbelievable.
It's a great vote of confidence," said one senior leveraged
Another leveraged finance banker agreed: "This is just what
the market needs."
John Malone's LGI on Wednesday announced a four-tranche
GBP2.3 bln-equivalent high-yield bond and the syndication of a
GBP2.3 bln-equivalent term loan B, part of a total GBP2.925
bln-equivalent loan supporting the buyout.
It has mandated Credit Suisse as a global coordinator and
Barclays, BNP Paribas, Bank of America Merrill Lynch and
Deutsche Bank as joint bookrunners for the bond.
Bankers close to the bond transaction expect the financing
to go smoothly, adding that large, liquid deals are something
that investors are crying out for.
Virgin Media is one of the biggest M&A transactions in
Europe since the 2007 financial crisis.
Including debt, the deal would be worth more than US $23
bln, and is the latest step in LGI's strategy to build its
European cable and broadband business which began in 2009 with
the acquisition of Unitymedia and was strengthened in 2011 when
it bought Germany's Kabel BW from private equity firm EQT.
A healthy European M&A pipeline including both corporates
and private-equity owned assets is now building after years of
financial market volatility and uncertainty about the economic
outlook sidelined Europe.
Leveraged buyouts for energy-metering firm Ista, French
catering business Elior and German media company ProSiebenSat.1
are all up for grabs and include billion-plus debt packages.
"There is more of a leap of faith that the economy is
improving and that both buyers and seller can make money from
acquisitions. There's also more confidence that instead of
sitting on cash from a sale, that the money can now be deployed
as more opportunities spring up," the first banker said.
Strong demand for two LBO deals last month - for Cerved and
DuPont - resulted in the timing on the first brought forward and
the latter rejigged to lower the overall cost of financing.
Some market participants raised concerns about high single
name exposure in the cable sector due to LGI owning a large
majority of the biggest players - Kabel BW, Telenet, Unitymedia
Although one banker said investors could demand a premium on
the new bonds for that reason, another pointed out that there
was no cross-default risk as each company is financed on a
standalone basis and is therefore ringfenced.
European and U.S. fixed income investor meetings for the
bonds will be taking place on Wednesday and Thursday with
pricing due on Friday, but the loans will price next week.
The bond offering will be split between sterling and dollars
and will consist of GBP1.717 bln-equivalent senior secured bonds
and GBP 578 mln-equivalent senior notes. Expected ratings are
Ba3/BB- for the secured notes and B2/B for the senior.
The new bonds will be issued by special purpose vehicles
Lynx 1 Corp and Lynx 2 Corp.
The secured notes are expected to be split between
eight-year non-call four GBP1.1bn and USD1bn tranches, while the
senior notes will be split between 10-year non-call five GBP300m
and US $450 million tranches.
SHEDDING MARKET RISK
LGI is also asking Virgin Media's existing bondholders to
waive their rights to ask the company to repurchase existing
bonds maturing in 2018, 2019 and 2021 as a result of a change of
control covenant that has been triggered by the acquisition.
If bondholders agree to that, the bonds will remain in
It will eliminate the risk that a new capital structure
would have to be put in place if the market deteriorates before
the acquisition closes and the bonds fall below the 101
All of those bonds are currently trading well above par.
LGI is offering a cash incentive to bondholders to agree to
"Liberty wants to eliminate that market risk now. It makes
sense to raise new bonds and loans now, and then let the
proceeds sit in escrow until the acquisition goes though," said
another market source close to the transaction.
It is less clear what strategy bondholders will take on the
existing 2022 bonds, which have traded at 98, according to the
Leverage at Virgin Media will increase from 3.1 times to 3.4
times on a secured basis and four times on an unsecured basis,
which is relatively conservative.
That is partly because sterling interest costs are slightly
higher than in euros and dollars.
The final sizes of the loans will depend on the outcome of a
bondholder consent solicitation, which closes on Feb. 14. If
more bondholders agree to waive their rights for the issuer to
repurchase bonds, the loan proceeds will be repaid to investors,
one source said.
Liberty also said it plans to launch a two-year, US$3.5 bln
share buyback program after the deal closes.
LionTree Advisors and Credit Suisse advised Liberty Global,
while Goldman Sachs and JP Morgan are Virgin Media's advisers.
(Reporting by Natalie Harrison, additional reporting by RLPC's
Isabell Witt; editing by Alex Chambers, Julian Baker)