By Danielle Robinson
Feb 13 (IFR) - The bond spreads of Time Warner Cable
tightened sharply Thursday, as did the cost of insuring the
company's debt against default, after news it would be acquired
TWC's bonds had tightened by 145bp by midday on Thursday on
word of the US$45.2bn all-stock deal merging the two largest US
cable operators into a media colossus.
Its 4.00% 2021s were trading at 76bp bid, in a whopping
145bp from 221bp on Wednesday before the deal was announced.
"TWC bonds were trading at junk and now they are looking at
the possibility of an A rating," Moody's senior analyst Neil
Begley told IFR. "It's amazing."
The deal seems to have foiled the hopes of cable pioneer
John Malone, who had waged a bitter eight-month battle to
acquire TWC by Charter Communications, whose biggest shareholder
is his Liberty Media Corp.
Bondholders had feared a takeover by double-B rated Charter
would have over-leveraged the new entity and sent some US$25bn
of TWC bonds into junk-ratings territory.
"Comcast is just a much better credit than Charter," said
one syndicate manager. "Simple as that."
Comcast is rated A3/A-/A- by Moody's, S&P and
"This deal won't change Comcast's rating," said Begley from
Moody's, which announced it was taking TWC's Baa2 rating off
review for downgrade and putting it on review for upgrade.
"It's more a question of whether we would raise the TWC
rating," he said.
The deal still needs regulatory approval.
CDS BETTER TOO
TWC's credit default swaps - the cost, in other words, of
insuring the company's debt against default - also tightened
dramatically on Thursday in response.
Its five-year CDS tightened around 108bp - a whopping 60% -
to around 74bp in another sign of the favorable reaction to the
deal, which caught many in the market by surprise.
Malone's Charter Communications had been dialling
up the pressure to get TWC in recent days.
Charter offered US$132.50 per share in a deal that would
have seen the combined company's leverage soar from around 3.5
times earnings to seven times.
After TWC chairman and chief executive Robert Marcus and his
management team rejected the Charter offer outright, Charter
effectively declared war by nominating 13 independent directors
to wipe out TWC's existing board.
That move would have meant a full-scale proxy battle at
TWC's shareholder meeting in May.
Begley of Moody's said the tie-up with Comcast would likely
generate more than double the cost savings of a deal with
"We think the combined company could benefit from as much as
US$1bn of cost savings, because Comcast's cable operating cash
flow margins were about 500bp greater than TWC's last year," he
The Comcast-TWC deal could also reap major commercial
opportunities, as it will create a customer reach that would
rival that of telecom giants AT&T and Verizon.
Because Comcast's acquisition is intended to be an all-cash
deal, some leveraged finance bankers will miss out on the fees
from the debt that likely would have been needed to push through
a deal with Charter.