European telecoms group Altice (AMS:ATC) has sought to allay fears about its debt levels as it embarks on securing the equity portion of its financing package for its US$17.7bn acquisition of US cableco Cablevision (NYSE:CVC) by undertaking a €1.8bn (US$2bn) capital hike.
European telecoms group Altice (AMS:ATC) has sought to allay fears about its debt levels as it embarks on securing the equity portion of its financing package for its US$17.7bn acquisition of US cableco Cablevision (NYSE:CVC) by undertaking a €1.8bn (US$2bn) capital hike.
Altice announced today that it has launched a share placement which will increase the capital of its A and B shares by about 10% each.
The capital raise takes the form of an accelerated bookbuild targeted at institutional investors and is expected to be completed on 5 October.
JP Morgan, sole global coordinator and bookrunner on the deal, will agree pricing with Altice following the placement.
Altice has agreed to a 90-day lock-up on its class A and B shares, while certain of its management have indicated they intend to buy at least €150m of class A and B shares.
The moves comes just under a week after the group priced US$8.6bn of new debt to help fund the purchase. The financing comprised a US$3.8bn seven-year term loan, US$1bn of 10-year senior guaranteed notes, and US$3.8bn of seven and 10-year senior unsecured notes.
The bond component of the financing package was downsized to US$4.8bn from a planned US$6.3bn amid investor concerns about the amount of leverage required to fund the deal, Altice’s overall debt and waning appetite for high-yield bonds in the US.
Debt component
Altice said the US$8.6bn debt portion of the financing package has an average cost of 7.6% and an average tenor of 7.9 years.
Taking into account Cablevision’s existing debt of US$5.9bn, the total debt financing amounts to US$14.5bn with an average cost of 7.5% and an average tenor of 6.6 years.
In addition, Cablevision has agreed a US$2bn five-year revolving credit facility which Altice said ensures there is “ample room” to meet the cableco’s liquidity needs.
Announcing the planned acquisition in mid-September, Altice said it would fund the deal with US$14.5bn of new and existing debt at Cablevision, cash on hand at Cablevision and US$3.3bn of its own cash.
In addition, private equity firm BC Partners and Canadian pension fund CPP Investment Board, which own a minority 30% in Altice’s other US investment, cableco Suddenlink, have an option to purchase up to 30% of the target’s equity.
Altice group capital structure
Following concern about its leverage levels resulting from the Cablevision deal and earlier leveraged buyouts, Altice has sought to clarify its capital structure.
Pro forma for the acquisitions of Cablevision and the 70% stake in Suddenlink, Altice said the group is levered at 5.3x L2QA (last two quarters annualized) EBITDA as of Q2 2015. It added that this does not take into account the expected synergies and efficiencies from the purchases of the two companies as well as Portugal Telecom.
Taking into account €3bn used to fund the Suddenlink deal, which was agreed in May and values the company at US$9.1bn, the group’s leverage rises to 5.7x L2QA EBITDA.
Altice said its average cost of debt is 6.2% with an average maturity of 6.6 years.
It has €4.4bn of undrawn revolving credit facilities with an average remaining maturity of 4.4 years, and a €1bn facility to fund the equity portion of the Suddenlink acquisition.
The Altice group consists of several units – Numericable/SFR, Altice International, Suddenlink and Cablevision – all with independent capital structures.
Cablevision and Suddenlink are the highest levered of the units at 7.4x L2QA EBITDA and 7.0x, before expected synergies and efficiencies, Altice said.
Altice noted that the group is making progress with its cost savings and synergy realisation plans. It confirmed its guidance of achieving medium-term EBITDA margin targets of 45% at Numericable-SFR and 50% at Altice International. It added that it is confident it will hit cost saving and synergies targets of €200m at Portugal Telecom, US$215m at Suddenlink and US$900m at Cablevision.
