€1.6bn TDC offering to boost high yield in Europe

Danish telecoms operator TDC, which was acquired by private equity consortium The Nordic Telephone Company (NTC) in a €10 billion ($12.3 billion) leveraged buyout last November, has begun marketing a €1.6 billion to €1.7 billion high-yield bond.
 

There has been an LBO and therefore the company has significantly increased its leverage from about two times EBITDA to north of seven times. Leandro de Torres Zabala, credit analyst, Standard & Poor’s

The bonds, which will be used to refinance a €2.031 billion bridge facility, are part of a measure taken by the private equity consortium to shift the debt from the acquisition company NTC to TDC itself.
 
According to the Financial Times, the offering was reduced in size from €2 billion, meaning that the outstanding amount could be refinanced with the disposal of non-core assets. It is also possible for a part of the bridge loan to be left outstanding.
 
Yesterday Standard & Poor’s (S&P), the ratings agency, downgraded TDC’s long-term corporate credit rating to BB- from BB, although it added that the outlook for the company is stable.
 
“There has been an LBO and therefore the company has significantly increased its leverage from about two times EBITDA to north of seven times,” said S&P credit analyst Leandro de Torres Zabala, explaining the reason for the downgrade.
 
De Torres Zabala added that the new rating took account of TDC’s disposable non-core assets, which could provide financial flexibility and potential for de-leveraging the company. “The expectation is that this company is going to raise its cash flow and carry out some disposal of assets in order to reduce debt,” he said.
 
According to TDC, ratings agencies Fitch Ratings and Moody’s also corrected the company’s long-term credit rating, “reflecting the new leveraged capital structure of TDC”.
 
TDC’s high-yield issue, one of the largest in Europe thus far, comes in the same week that Danish cleaning services company ISS sold €975 million of high-yield bonds. The move by ISS follows a legal dispute last year when the company was acquired by EQT and Goldman Sachs Capital Partners in a €3 billion LBO transaction, which tripled the company’s debt and caused a 20 percent drop in the price of existing ISS bonds.
 
As a result, ISS bondholders threatened the private equity firms with legal action, suggesting that the LBO had changed the company’s obligations to its bondholders. The dispute was later settled, although terms of the settlement were not disclosed.