EMEA High-Yield Bond and EMEA Leveraged Loan: Numericable’s and Altice’s US$21.9bn acquisition financing

IFR Review of the Year 2014
3 min read
Claire Ruckin, Robert Smith

The US$21.9bn-equivalent financing backing French telecoms operators Numericable and Altice’s acquisition of rival firm SFR used multiple markets on an unprecedented scale to achieve a stand-out result for the borrowers.

The package included the largest high-yield bond issue ever – a US$10.9bn-equivalent offering from Numericable – and achieved much tighter pricing than many in the market had been expecting.

“It was the largest, most complex cross-border deal of the year,” said Nick Jansa, head of European leveraged DCM at Deutsche Bank.

Much was down to the handiwork of Altice founder Patrick Drahi, who has quickly established a reputation as one of the shrewdest operators in the cable and telecoms business. Drahi was very much seen as the outsider in the battle to acquire SFR, pitted against the French establishment’s billionaire of choice, Martin Bouygues.

While Drahi eventually prevailed, global co-ordinators Deutsche Bank, Goldman Sachs and JP Morgan faced the problem of how to sell a deal of unprecedented size.

The solution was competitive tension. To get the best price, everything in the trade was pitted against something else: opco versus holdco, euro versus US dollars, and loans versus bonds.

First, the Altice SA parent was used to issue US$5.8bn-equivalent of high-yield bonds in addition to the US$16.1bn-equivalent of opco bonds and loans at Numericable. To sell this monster holdco debt package, bankers also had to get investors comfortable with the cash streams and business risk of Altice International.

Second, even though it was funding a purely French acquisition, the majority of the financing at both the opco and holdco was raised in dollars to achieve the best cost of capital; it was cheaper in the end to raise in dollars and swap back to euros.

Finally, a nimble approach across asset classes allowed bankers to massively increase the Numericable bond offering to US$10.9bn-equivalent at the expense of the loan. There was a constant interplay between the sizes of each tranche in order to achieve the best results for the borrower.

The euro loan was originally launched at €2.6bn but was reduced to €1.6bn, while a dollar piece was reduced to US$1.5bn from €3bn-equivalent after the bond portion was increased following strong demand. Last-minute investor appetite then saw the loans increase, finalising at €1.9bn and US$2.6bn, together making Europe’s largest-ever covenant-lite leveraged loan.

The strategy worked better than anyone expected, with the bonds receiving an unprecedented US$100bn of orders, shattering the perception that European leveraged finance is the poor cousin of the US market.

“If anyone asks what is do-able in terms of size and complexity in the leveraged market, Numericable is now the reference and the benchmark,” said Jansa.

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EMEA High-Yield Bond and EMEA Leveraged Loan 2014