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Ziggo and Vodafone JV to lead to 2bn of new debt
By Robert Smith
LONDON, Feb 16 (IFR) - The merger of Liberty Global (NasdaqGS: LBTYA - news) 's Ziggo and Vodafone's Dutch operations should result in billions of euros of new high-yield bonds or leveraged loans, according to market participants.
Liberty Global and Vodafone are forming a 50-50 joint venture, combining Netherlands broadband and cable TV company Ziggo (Other OTC: ZIGGF - news) with Vodafone's Dutch mobile operations. Vodafone is making a 1bn cash payment to Liberty Global and contributing its Netherlands business to the JV on a debt and cash-free basis.
The new joint venture will target leverage of 4.5-5.0x covenant Ebitda - in line with Liberty's other European business - and expects to raise new debt financing to reach this target.
The company said that proceeds from the financing would be distributed equally between Vodafone and Liberty Global.
One investor said this should translate to around 2bn of new debt with another saying the figure could be as large as 3bn. Barclays (LSE: BARC.L - news) credit research analysts said that 2bn of new issuance would bring leverage in line with 4.75x.
While Liberty has a history of executing new debt deals very quickly after announcing M&A trades, a leveraged finance banker said that he was not expecting a new deal imminently.
"There's still some antitrust risk in there and if they already had committed financing I think they would've announced it in the press release," he said.
The second investor noted that Ziggo is a regular issuer in the leveraged loan market and could turn to that market if conditions in high-yield are unappealing. The banker said that Ziggo traditionally raises around 80% secured financing and 20% unsecured.
Market participants have long anticipated a deal between Liberty Global and Vodafone in some form, although talks about wider asset swaps across Europe broke down in September.
"This deal is alright - although I'd argue that 5.0x leverage is less appropriate for their weaker Dutch business than it is for Unitymedia or Virgin," said the first investor.
"The reason this is interesting though, is whether it'll be the hors-d'oeuvre before the main course arrives."
He said that the success of the deal could determine whether the two companies pursue similar strategies in Germany and the UK, where Liberty Global owns Unitymedia and Virgin Media, respectively.
The second investor said that the antitrust approval process for CK Hutchison's US$14bn purchase of O2 from Spain's Telefonica (Amsterdam: TA6.AS - news) could determine what happens in the UK.
"The fact that T-Mobile Netherlands was also up for sale gave Liberty a strong bargaining chip in negotiations with Vodafone here," he said. "If the O2-Hutch deal falls through, then O2 would be back on the market and would give them similar leverage over Vodafone in the UK."
He noted that the terms of the deal allow either JV party to buy the other out after four years, which could potentially see Ziggo's bonds return to investment grade if Vodafone buys the whole business.
Ziggo's bonds traded up on news of the deal, with its 400m 4.625% 2025 note strengthening a point to 93.70 on Tuesday morning. (Reporting by Robert Smith, editing by Alex Chambers and Ian Edmondson.)
