LONDON, March 19 (IFR) - Italian telecoms company Wind saw
its payment-in-kind bonds soar on Wednesday after its Russian
owner Vimpelcom announced plans to refinance the debt, bringing
relief to investors who had feared interest payments would be
The 12.25% US dollar and euro denominated 2017 PIK
instruments amounting to EUR1.2bn-equivalent jumped as much as
four points and were bid between 103 and 106 in cash terms
following the news, according to Tradeweb.
Mobile operator Vimpelcom must wait until April 2 for the
consent from lenders, but the market reaction signals that the
refinancing will go ahead after months of uncertainty that has
caused huge volatility in the price of the deeply subordinated
"It sends a really positive signal to investors after months
of fears that the company would not refinance in time for the
first coupon payment," one London-based investor said.
Talk of a jumbo refinancing first surfaced last year amid
fears the company's capital structure would make it difficult to
pay the first cash coupon on the PIKs due in July
Hopes that Vimpelcom would use a new USD4bn loan facility to
fund the refinancing sent the PIKs above 106 in September, but
they fell again on talk the proceeds might be used to repay the
EUR2.7bn-equivalent 11.75% 2017 senior notes instead.
The Russian owner will stump up EUR500m of its own cash to
finance the PIK redemption - another move that gave the market a
boost of confidence - and will also issue around EUR800m of
additional subordinated debt at the Wind subsidiary.
Vimpelcom bought Wind in 2011 in a deal which also saw it
take a 51% stake in Egypt-based Orascom Telecom for USD6bn. It
has a total net debt of USD22.6bn, according to its latest
earnings report, of which Wind's debt accounts for USD14.5bn.
Although Barclays said the company would have to pay a
EUR233m redemption premium on both the subordinated and PIK
bonds, it will still save significantly on interest costs.
"Overall, we view this as a positive transaction for the
Wind capital structure as it should reduce interest expenses,
enabling the company to generate positive free cash flow going
The strategists estimated those annual interest savings
could be as much EUR170m, assuming an 8% coupon on newly issued
In addition, Vimpelcom said the refinancing would also boost
cash flow generation, help it to deleverage and extend its
Wind plans to extend the maturity of its bank debt, of which
EUR360m matures in November 2016 and EUR2bn in November 2017. No
changes are anticipated for the existing senior secured notes,
the Barclays strategists said.
The only negative implication they noted is a moderate
increase in leverage through the subordinated level of the
"On a pro-forma basis we calculate a 0.5x increase in
subordinated leverage to 5.2x from the current 4.7x."
(Reporting by Josie Cox; Editing by Natalie Harrison)