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C&W launches consent on Liberty purchase agreement

NEW YORK, Nov 17 (IFR) - Caribbean telecom operator Cable & Wireless Communications launched a consent solicitation for US$750m of its 2022s after Liberty Global agreed to buy the company in a deal valued at US$8.2bn including debt.

The company is asking holders to waive any obligation by the issuer, Sable Finance - a C&W subsidiary - to offer a 101 change of control option within 30 days of the proposed acquisition.

If holders of 100% of the notes agree to consent before the expiration date of November 24, they will receive US$30 per US$1,000 principal amount.

The fewer bonds offered in the consent, the higher the payment. Creditors will receive US$40 if 75% of the bonds are tendered, and US$59.88 if just 50.1% are tendered.

The bonds have rallied about 1/8 of a point to trade on Tuesday at a mid-market price of 101.50.

Liberty has a US$790m senior unsecured bridge facility in place to exercise the change of control option at 101.00 in the event that the solicitation fails, according to CreditSights.

CreditSights analysts like the consent premium but recommend lightening exposure to the unsecured 2022s amid expectations that a more leveraged company will emerge from the acquisition, possibly subordinating the notes.

Liberty is likely to embark on more M&A after creating a regional platform in Latin America and the Caribbean, changing the risk profile for creditors who had held C&W debt, the research shop said.

Target leverage for the new group is 4-5x, up from 2.5x-3x, but CreditSights calculates pro forma net leverage at around 4.7x before any synergies are realized.

“If a Liberty Global deal was to happen, there would be the need to issue more debt, which could present a better entry point for the credit,” CreditSights said.

Goldman Sachs and BNP Paribas are acting as solicitation agents.

Cable & Wireless is also arranging a US$800m credit facility through leads Bank of America Merrill Lynch to refinance US$400m 8.75% senior secured 2020s issued by Sable and to fund a special dividend to C&W shareholders.

The telco also has about US$1.25bn of outstanding 7.375% senior 2021s issued by subsidiary Columbus International, but these are less likely to be impacted by the Liberty purchase in the near term.

An incurrence test of 4.25x on a subsidiary that already has gross leverage of 4.4x means that the issuer can’t raise more debt, said Michael Chakardjian, senior analyst at CreditSights.

An expensive make-whole provision makes it unlikely that the issuer will try to retire the bonds - at least until the first call date in March 2018, when they are callable at 103.688.

The bonds have rallied since the discussions of the merger were announced to trade on Tuesday at 104.50-105.50, making the exercise of a 101 change of control option unlikely.

“I would imagine that Liberty will eventually want to remove the Columbus bucket but will wait because it is too expensive,” said Chakardjian. (Reporting By Paul Kilby)