Junk-bond investors have forced cable company Altice to pay a hefty rate of interest on a new debt deal, after the heavily leveraged group faced resistance from big Wall Street fund managers.
The sprawling telecom group’s Luxembourg unit paid a lofty 10.5 per cent yield on a new $1.6bn eight-year bond on Friday, while also raising a €1.4bn bond of the same maturity at 8 per cent yield. That double-digit coupon is much higher than this part of the group has previously paid in the debt markets, although Altice plans to swap these dollar bonds into euros, reducing the interest bill.
Analysts at CreditSights, the research firm, said the new deal was “priced to sell”, describing the yields as “materially” higher than the levels at which the company’s existing debt is trading. A €750m bond maturing in 2025 is yielding less than 7 per cent in the secondary market, for example.
The deal faltered after US investors demanded significantly higher yields than those originally pitched by the banks running the deal, led by Goldman Sachs.
“Guys in the US wanted to extract a reasonable pound of flesh,” said one London-based hedge fund manager, who said US investors were “less enamoured” of the company’s management than their European counterparts.
Franco-Israeli billionaire Patrick Drahi built Altice’s sprawling cable and telecom empire through a rapid series of debt-funded acquisitions, harnessing the strong demand for high-yield bonds and leveraged loans in an era of very low base interest rates.
Investors’ sentiment soured towards the end of 2017, however, after poor results heightened concerns over the company’s ability to keep servicing its then €50bn debt pile. Altice’s senior management, many of whom have a lot of personal wealth tied up in the company’s stock, vowed to put the brakes on M&A deals and simplify the group’s structure, leading to a spin-off of the group’s US business last year.
Several bankers and investors said the bond sale also lost some momentum due to widespread knowledge in the market of a different debt proposal pitched by JPMorgan Chase, traditionally one of Altice’s house banks, which was conspicuous in its absence on last week’s debt sale.
One portfolio manager said the US investment bank had sounded out investors about a potential deal from Altice at yields north of 11 per cent. That fuelled US fund managers’ reticence to buy the bonds when they eventually emerged at lower yields.
“[JPMorgan] made a big stink about not getting the deal in the end,” the fund manager added.
The Wall Street bank, which has close ties to Mr Drahi’s cable group, led many of the debt deals that have funded Altice’s rapid expansion. The Altice founder’s son, Nathan Drahi, worked in the leveraged finance department of JPMorgan until the start of this year, when he moved to private equity firm BC Partners.
Goldman and the other banks that ultimately won roles on the deal had to provide so-called “hard underwriting”, agreeing to backstop the fundraising in the event that investors did not buy it. JPMorgan was unwilling to commit its balance sheet to the deal if it were lead by Goldman, according to people familiar with the matter.
JPMorgan and Altice declined to comment.
Altice Luxembourg is a holding company that sits above the company’s French business SFR and its international arm that includes operations in Israel, so its bonds are viewed as riskier than those that sit at the operating companies.
The company has also recently annoyed some bond investors because it has stopped reporting data on the average revenue it earns from each of its customers. Several investors have complained directly to Altice about the switch, although the company’s management has argued that it is a less relevant metric than it once was.
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