Kabel Deutschland Debt-Protection Cost to Rise, UniCredit Says

Feb. 8 (Bloomberg) -- Investors should buy default insurance on the debt of Kabel Deutschland GmbH because the company is likely to be sold in a leveraged buyout, according to Stephan Haber at UniCredit SpA.

Credit-default swaps on Germany’s largest cable-television operator would likely rise to about 600 basis points from 500 basis points should private equity firms acquire the company, the credit analyst said in a research note. In an LBO, a buyer funds its acquisition by loading the target firm with debt.

Blackstone Group LP, BC Partners Ltd., CVC Capital Partners Ltd. and Advent International Corp. are among private equity firms weighing bids for the company, people familiar with the situation said on Jan. 27. Kabel Deutschland is also exploring the possibility of an initial public offering this year, it said in November.

“A sale to another private equity group appears more likely than an IPO,” Munich-based Haber said in an interview. Kabel Deutschland’s existing owner, Providence Equity Partners Inc., can achieve a “100 percent exit in one go at a relatively attractive price, while going through an IPO leaves it exposed to equity market volatility,” he said

In an LBO, Providence may get about 5 billion euros ($6.83 billion), which is equivalent to eight times the company’s earnings before interest, tax, depreciation and amortization, Haber said. If a new private equity owner uses about 3.5 billion euros of borrowing to fund the buyout, the company’s debt would rise to 5.8 times its Ebitda, compared with 3.7 times at present, Haber wrote.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year.

To contact the reporter on this story: Patricia Kuo in Hong Kong at pkuo2@bloomberg.net.