Telenet Bonds Fall Most in a Year on Debt-Funded Buyback
Stock Chart for Telenet Group Holding NV (TNET)
Bonds of Telenet Group Holding NV (TNET) fell the most in almost a year as the Belgian cable TV operator said it will take on 700 million euros ($863 million) of debt to help fund a share buyback.
Telenet’s 500 million euros of 6.375 percent high-yield notes due 2020 dropped 1.4 cents to 104.1 cents on the euro at 2:30 p.m. in London, the biggest one-day decline since Sept. 22, according to data compiled by Bloomberg. The price fall pushed the notes’ yield to a one-week high of 5.75 percent.
The cable operator controlled by Liberty Global Inc. said it’s “taking advantage of current favorable credit market conditions” to raise 700 million euros from a two-part sale of bonds due in 10 and 12 years. Telenet intends to increase the ratio of its net debt to earnings to about 4.5 times, the higher end of its leverage target range.
“It’s a great time to issue higher quality high-yield debt, especially in the cable sector and from northern Europe,” said Stuart Stanley, a fund manager at Invesco Asset Management Ltd. in London who oversees $3 billion of high-yield bonds. “So they should have little difficulty despite the proceeds being used for shareholders, which is always a negative.”
Telenet is rated Ba3 by Moody’s Investors Service, three levels below investment-grade status. Yields on junk-rated bonds have dropped 50 basis points this month to 7.51 percent, close to a four-month low of 7.49 percent on Aug. 9, according to Bank of America Merrill Lynch’s Euro Non-Financial High-Yield index.
JPMorgan Chase & Co., BNP Paribas SA and Goldman Sachs Group Inc. are managing Telenet’s sale of senior secured notes, which includes 400 million euros to 500 million euros of bonds due 2022, callable after five years and yielding about 6.375 percent. It will also issue 200 million euros to 300 million euros of 12-year notes that are callable after six years, according to a person with knowledge of the transaction.
The company dropped plans to raise an equivalent 200 million euros from dollar debt markets, said the person, who asked not to be identified because the information is private. It last tapped bond markets in June 2011, when it issued 400 million euros of floating-rate notes, Bloomberg data show.
The new bonds are part of Mechelen, Belgium-based Telenet’s plan to change its capital structure. The cable company plans to buy back as much as 724 million euros of its own shares through a voluntary tender for as much as 18 percent of its outstanding stock. Future dividend payments will consist mainly of share repurchases, the company said in a statement today.
Fitch Ratings downgraded Telenet’s long-term issuer default rating by two levels to B+ after the company’s announcement, citing its increased leverage. The cable operator’s outstanding secured debt was cut to BB from BB+.
“While Telenet has consistently demonstrated strong pre- distribution free cash flow generation and an ability to deleverage, the level and debt-funded nature of distributions suggests a willingness to maintain higher leverage than previously anticipated by Fitch,” analysts led by Stuart Reid in London wrote in a report.
Telenet owes bondholders 1.3 billion euros, Bloomberg data show. The company’s second-quarter earnings before interest, tax, depreciation and amortization climbed 8.1 percent to 194.4 million euros from a year earlier, beating analysts’ forecasts.
The company’s shares rose as much as 3.5 percent in Brussels, the biggest intraday percentage gain since May 16, and traded at 35.36 euros, or 2.3 percent higher, at 3:35 p.m. local time.
To contact the reporter on this story: Hannah Benjamin in London at email@example.com
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