EMEA High-Yield Bond
Shape of things to come: In a year of unprecedented supply and diversity, a bond from Ziggo set a number of records. Despite pricing in one of the most challenging weeks of the year, it will probably remain a blueprint for others for years to come. Ziggo’s €1.2bn eight-year senior unsecured bond issue is IFR’s EMEA High-Yield Bond of the Year.
One of the key themes of supply in 2010 saw borrower’s turn away from bank funding and look to refinance debt through the high-yield market. Sponsor LBO-driven deals gained particular prominence, with one deal epitomising the depth of the market, its growing sophistication and its ability to price solid risk even at the most difficult of times. That deal was Ziggo’s €1.208bn eight-year, non-call four, senior unsecured bond.
“One of the key characteristic themes of 2010 was sponsored refinancings and the Ziggo deal ticked all the boxes. Size, investor education, execution at a torrid time, innovation and performance were all achieved,” said Matthew Cestar, head of European leveraged finance at Credit Suisse, the deal’s lead left and joint global co-ordinator.
The transaction broke a few records: the largest sponsor refinancing in 2010; the largest Single B debutant in Europe since 2007; the largest single euro tranche trade to price since 2007; and the tightest pricing achieved for an unsecured cable deal.
It was “the first high-yield bond in Europe to introduce a portability feature subject only to an objective leverage test, which removes investors’ ability to require a change of control event, creating the potential for a fully portable financing,” said Michael Marsh, MD of credit capital markets at Goldman Sachs, also lead left and JGC on the deal.
This prevents investors in the deal from using the change of control put at 101% if at the time of the change of control the pro forma leverage of the issuer is less than five times for the initial one-year period and 4.5 times thereafter. This would be a crucial feature for getting all parties comfortable and the clause was introduced with the view that the sponsors intend to exit the business over the next few years.
The notion of a portability feature is not entirely new – an Impress deal back in 1997 used a ratings-based portability feature. But Ziggo is the first portable based only on a leverage test, a feature that others then used to get major sponsor refinancings away, most notably a transaction from Sunrise. The feeling in the market is that the deal will provide a template for other similar offerings in the future.
Innovative deals require an even greater amount of investor education and this required a major effort. According to Credit Suisse, the leads undertook six days of research-led pre-marketing, with the aim of educating the 40 largest accounts. About 900 hard copy research reports were distributed.
This marketing reaped rewards. Bookbuilding was excellent, ensuring the final book was 4.5 times oversubscribed with more than 300 accounts declaring an interest. The yield guidance of 8.25% area was eye-catching – even at this level the bond would have been the tightest priced unsecured cable deal. As it was, the huge level of demand ensured the bond came at the tight-end of guidance, with a yield of 8.125%.
The pricing of the bond was all the more admirable for the fact that Greece was downgraded just 30 minutes before pricing. While other deals priced during turbulent periods, no other transaction faced such a daunting prospect. The downgrade triggered a spike in the iTraxx Crossover to over 50bp, while the Main broke 100bp for the first time in 2010. All markets felt the reverberations of the event and only one new deal priced in the European investment-grade corporate arena that week.
“Seeing all your screens go red 30 minutes before pricing is fraught, to say the least,” said Simon Francis, vice-president of credit capital markets at Credit Suisse. “But we were confident that this issue was going to be a success so we got on with it”.
That the new issue only fell by one point on the break was a genuine achievement, only surpassed by its recovery the following day, when, having priced at 99.271, it traded up to 99.50 bid. Its stellar performance continued: by mid-November the bond was trading up at 103.75, a rise in price of 4.50%.
The April issue also paved the way for the borrower to return in October with a €750m (increased from €500m) seven-year non-call three senior secured bond.
Luke Millar
