April 7, 2016 / 2:11 PM / 3 years ago

Numericable stuns market with record-breaking US$5.2bn bond sale

LONDON, April 7 (IFR) - Numericable stunned the market with its US$5.2bn bond deal on Wednesday, the largest single high-yield bond tranche ever issued.

The French telecom firm originally announced the deal as a US$2.25bn trade on Tuesday before being upsized to US$3bn on Wednesday. Investors had expected the first upsize as it allowed Numericable to fully refinance an outstanding 2019 issue, but several said they were caught completely off guard by the final increase to US$5.2bn.

“I can only think that there were some massive late orders, or perhaps the bank debt guys offered to roll into the bond,” said one, referring to the US$1.9bn of term loans Numericable said it would repay with the additional debt.

The US$5.2bn print makes it the largest junk bond issue ever, according to IFR data. The previous largest bond sale was Sprint’s US$4.25bn 7.875% 2023 note issued in September 2013.

One investor said the only bigger high-yield bond outstanding was the Petrobras US$5.25bn 5.375% 2021 note, but the Brazilian oil giant issued this bond in 2011 when it had an investment-grade rating.

Despite the deal’s massive upsize, the bonds traded well in the secondary market, bid up a point at a 101 cash price on the break.

One investor said he had heard the deal ended up three times oversubscribed, translating to a US$15bn final book.

Two other investors said that this US$15bn figure sounded accurate, as their orders were not filled, something they had both initially feared when they saw the large upsize.

MASSIVE RUNWAY

Investors told IFR on Wednesday that they only expected Numericable to upsize the deal if it did not compromise performance, as the company’s owner Altice is looking to refinance a number of bonds this year.

Altice’s billionaire founder Patrick Drahi has built his cable and telecommunications empire through a string of aggressive debt-backed acquisitions, but the company is now indicating that its focus has shifted to fine-tuning its operations and pushing out debt maturities.

While the new issue came at a relatively high 7.375% coupon, Altice said on Thursday that it would equate to 5.7% when swapped back into euros. The refinancing exercise also leaves Numericable with “no material debt repayments due until 2022”.

“My takeaway from this is that Patrick Drahi is very bearish on funding markets over the next few years,” said a high-yield fund manager.

“With the swap, they’re getting a decent price to massively term out their debt. This means that Numericable can ignore the capital markets for years now if it has to.”

A high-yield credit analyst said the new deal would also send a strong message to equity markets, where Numericable and Altice’s share prices have slumped more than 40% and 50%, respectively, from their highs last year.

“There was a really negative sentiment after they printed the 10-handle deal in the US, it made a lot of equity analysts think ‘Hold on, maybe this is unsustainable’,” he said, referring to the US$3.8bn of unsecured bonds Altice raised to buy Cablevision in September, which yield more than 10%.

“From a fundamental perspective, this deal is a pretty enormous positive for Numericable and in turn for Altice, as it gives them massive runway to run the business at a cost of less than 6%.”

Altice’s shares were up more than 3% on Thursday, their best day in three weeks.

JP Morgan was the lead underwriter on Numericable’s deal with BNP Paribas, Deutsche Bank, Barclays, Bank of America Merrill Lynch, Credit Agricole, Goldman Sachs and Morgan Stanley also working on the deal as bookrunners. (Reporting by Robert Smith, editing by Alex Chambers and Ian Edmondson)

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