Telecom giants Orange SA and Masmovil Ibercom SA are seeking to line up a debt package of up to 6 billion euros ($6.6 billion) to back a joint venture, creating one of the largest leveraged debt financings in the region, people familiar with the matter said.
Orange and Masmovil entered into exclusive negotiations on March 8 to combine their businesses and consolidate the Spanish telecom market, in a deal that would give the combined company an enterprise value of 19.6 billion euros, according to a press release.
The joint venture will require a debt financing, and to date there is none in place, the people said, who asked not to be identified because the matter is private.
Raising so much debt in the public markets at the moment, given the volatility caused by Russia’s invasion of Ukraine, will put to the test banks’ underwriting appetite. At present, banks are sitting on around $65 billion of existing underwrites they still need to sell down. Private credit could try to participate in some form, given its recent track record of dealmaking even in the current climate.
The expectation is that Masmovil and its shareholders will hold talks with banks over the next 8 weeks and look to put together a bank group and debt commitments. However there is a long window for the debt to be issued before the deal funds, the people said.
A Masmovil spokesperson declined to comment on the financing. An Orange representative said, “At this stage of the exclusive negotiations, there are no financing needs that need to be addressed by Orange. If an agreement is reached with Masmovil then Orange Spain will bring its solid networks assets and no financial debt to the 50-50 joint venture.”
Any new financing is expected to sit at the joint venture, which will become one of the largest issuers of leveraged debt in Europe. Masmovil already has 3.2 billion euros of leveraged loans making it the largest European leveraged loan issuer in Europe, according to Bloomberg data. It also has 2.85 billion euros of notes via its Kaixo and Lorca subsidiaries.
The debt financing is expected to total 5.5 billion to 6 billion euros and is likely to come in the form of leveraged loans and high-yield bonds, denominated in euros and dollars.
Masmovil, whose CEO is founder Meinrad Spenger, is owned by a group of three buyout firms: Cinven Ltd, KKR & Co, and Providence Equity Partners LLC, who acquired the carrier in 2020. A Cinven spokesperson declined to comment. Representatives of other two private equity companies didn’t immediately respond to requests for comment.
Since 2020, Masmovil has acquired another Spanish telecom firm, Euskaltel, and has been growing its presence in Portugal.
On the Orange and Masmovil JV, Lazard acted as financial advisor to Orange, while Goldman Sachs worked as financial advisor to Masmovil and BNP Paribas as its debt advisor, according to the joint press release.