Numericable's bond increase hits loan market

By Claire Ruckin

LONDON (Reuters) - French cable company Numericable's decision to halve the size of a planned loan backing its acquisition of French telecom SFR to 2.8 billion euros (2.30 billion pounds) and boost its bonds to 8.4 billion euros is a blow for the leveraged loan market.

Numericable slashed the size of a covenant-lite term loan from a planned 5.6 billion euros and increased its bonds from an original 6.04 billion euros on Monday after overwhelming demand from bond investors.

Bonds are currently cheaper than loans for Numericable, which was able to adjust its debt package to get the best terms after huge demand from bond investors.

"All in, the bonds are coming in cheaper than the loans so it is obvious why the borrower would opt for the bonds," a loan investor said.

More than 50 billion euros was pledged for Numericable's 11.2 billion euros of bonds and loans and 25 billion euros was raised for holding company Altice's 4.15 billion euros of bonds, bankers said.

Investors that are able to invest in both loans and bonds preferred the fixed-rate bonds which were offered with call protection that penalise companies for refinancing early.

"If you believe the company can deleverage significantly over the next 12 to 18 months then you get more upside buying the bonds than the loans," a leveraged banker said.

The euro-denominated term loan B was cut to 1.75 billion euros from a planned 2.6 billion euros at launch. The US dollar denominated term loan B was also slashed to 1 billion euro equivalent from a planned 3 billion euro equivalent.

The loan will price at the wide end of guidance at 375 basis points (bps) from initial guidance of 350—375bps and will be offered with a 75bps Libor/Euribor floor and a discount of 99-99.5.

LOAN DISAPPOINTMENT

The loan had a disappointing syndication in Europe. Up to 1.25 billion euros of existing fund investors rolled into the deal, but only 500 million euros of new money was raised.

Banks were unable to roll into the covenant lite deal. Covenant lite loans are common in the US and have been accepted by European institutional investors, but remain difficult for banks as they offer investors little protection.

The weak response from cash-rich European investors is surprising, bankers said, as investors have had few opportunities to join large liquid deals this year.

One possible explanation is that the new-money element of the loan will not fund immediately and will pay a ticking fee unlike the bonds which start earning income immediately, along with the existing loans that are being refinanced.

"It is pretty disappointing that the deal hasn't taken a lot of liquidity out of the European loan market. The European loan market is hot but the bond market is much, much hotter," a second leveraged banker said.

The size of the bonds and loans could be adjusted again before closing. High demand for the bonds is causing pricing to tighten, which is making the loan look more attractive again.

Numericable's loan and bond debt package was underwritten by a group of nine banks. Joint global co-ordinators Deutsche Bank, Goldman Sachs and JP Morgan were joined by Barclays, BNP Paribas, Credit Agricole, Credit Suisse, ING and Morgan Stanley.

Numericable was not immediately available to comment.

(Additional reporting by Natalie Wright and Mariana Santibanez in New York.; Editing by Tessa Walsh)