Vivendi Dashing Takeover Means Record Decline for TVN Bonds: Poland Credit

Eurobonds of TVN SA (TVN), Poland’s largest television network, are sinking the most on record this week as the decision by Vivendi SA (VIV)’s Canal Plus to buy a minority stake dashed speculation that a full takeover is planned.

TVN’s 175 million euros ($241 million) of bonds due in 2018 fell 4.2 percent in the biggest three-day slump since they were sold in 2010, raising the yield to 7.83 percent yesterday from a record-low 7.03 percent on Oct. 28, data compiled by Bloomberg show. The yield rose further to 7.98 percent today. The premium demanded for TVN notes over 2017 bonds from Paris-based Vivendi, owner of the world’s largest music and video-game companies, was 438 basis points yesterday versus 306 on Oct. 28.

Vivendi’s pay-television unit agreed to buy a “significant minority” stake with an option for a controlling share “over time,” according to a Nov. 1 statement by Polish ITI Holdings SA, majority-owner of TVN, undermining investor expectations that Vivendi, rated five grades higher than TVN at Baa2 by Moody’s Investors Service, would buy all of the company. Warsaw- based TVN’s yields sank from a record 9.2 percent on Sept. 30.

“Investors expected that TVN, a company with a relatively low credit rating, will be taken over by higher-rated Vivendi, which would have increased the value of its bonds,” Wojciech Gorny, who manages the equivalent of $760 million including TVN bonds in mutual fund IDEA TFI, said by phone from Warsaw on Nov. 2. “This positive scenario didn’t pan out.”

Stock Slides

Speculation of a takeover began building after ITI’s Chairman Bruno Valsangiacomo said on Aug. 5 that the company sought to sell a “controlling stake in TVN.” Parkiet newspaper reported Oct. 29 that Vivendi’s Canal Plus unit would buy the company in two stages, first taking a minority stake in ITI and completing the acquisition after TVN repays its debt. Shares of TVN, which is rated the fourth-highest non-investment grade of B1 by Moody’s, have declined 10 percent since the Parkiet report.

ITI’s Nov. 1 statement didn’t comment on repayment of debt or provide more detail on a timeframe for further transactions.

Malgorzata Radziszewska, a spokeswoman for ITI, declined to comment on the transaction. Karol Smolag, a spokesman for TVN, and Jean-Louis Erneux, a Vivendi spokesman, also declined to comment.

TVN bonds fell as the Markit iTraxx Europe Crossover index, which comprises 50 credit default swaps on the most liquid junk- rated European corporate bonds, rose 107 basis points since Oct. 28 and stood at 723 yesterday as Greece’s proposal this week to call a referendum on its bailout sparked concern Europe’s debt crisis will worsen, triggering a flight to safer assets.

‘Escaping’ Debt

“Investors are escaping from corporate debt to seek safer shelters,” Dariusz Gorski, an analyst at Bank Zachodni WBK SA, said by phone from Warsaw on Nov. 2, adding that the TVN bond slide should be seen as part of the “bigger trend.”

Five-year credit default swaps on Polish government debt rose five basis points yesterday to 251 at 11 a.m. in Warsaw, according to London prices from CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

The swaps cost 52 basis points, or 0.52 percentage point, less than the average for countries in eastern Europe, the Middle East and Africa included in Markit iTraxx SovX CEEMEA Index, compared with an 81 basis-point discount a year ago. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Yield Spread

The extra yield investors demand to hold Polish government dollar-denominated bonds rather than U.S. Treasuries fell four basis points to 279, indexes compiled by JPMorgan Chase & Co. showed. The spread over German euro-denominated bonds declined five basis points to 387, down from a nine-year high of 443 on Sept. 22, data compiled by Bloomberg show.

Yields on government zloty bonds due in a decade were unchanged at 5.75 percent.

The zloty weakened 0.2 percent to 4.3857 per euro at 11:39 a.m. in Warsaw, after rising 1.2 percent against the European single currency in October, the second-best performance among European emerging markets after Russia, according to data compiled by Bloomberg. In the third quarter, the zloty weakened 10 percent against the euro and 17 percent against the dollar.

ITI’s Valsangiacomo said on Aug. 5 that the group started to look for a buyer for TVN after heirs of late Chairman Jan Wejchert, who controlled a 64 percent stake in ITI, decided to exit the investment. Wejchert passed away two years ago.

Buying Opportunity

“There had been some kind of expectation for a full-blown deal,” Michael Holte Christensen, who helps manage the equivalent of $690 million in global high-yielding corporate debt at Jyske Bank A/S in Silkeborg, Denmark, said by phone yesterday. “There is a bit of disappointment. But I think it’s a good deal and if these bonds were to see more weakness then I would definitely look to buy more.” Jyske owns TVN bonds due in 2017 and 2018.

TVN and Canal Plus are expected to merge their Polish satellite pay-TV businesses in a joint venture, ITI said Nov. 1. The new company, in which TVN will hold a “significant minority” stake, will have more than 2.5 million subscribers, ITI said.

The new company will compete with Cyfrowy Polsat SA, the country’s largest satellite TV operator, which has about 3.5 million customers. Yields on Cyfrowy’s 2018 Eurobonds rose eight basis points yesterday to a six-day high of 8.15 percent.

TVN’s shares declined 4.6 percent yesterday to 12.14 zloty, the lowest level since Aug. 22. Today the stock rose 4.6 percent to 12.7 zlotys, valuing the company at 4.37 billion zloty.

“The positive side is the merging of those two platforms,” said Bank Zachodni’s Gorski. “The question is who will pay for the integration and upgrade of their systems.”

To contact the reporter responsible for this story: Maciej Martewicz at mmartewicz@bloomberg.net; Marta Waldoch at mwaldoch@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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