Britain’s second-biggest pay TV company is marketing $3.6 billion of junk bonds in dollars and pounds, said a person familiar with the transaction, who asked not to be identified because the terms aren’t public. Virgin Media is also seeking $4.7 billion of loans as part of the fundraising arranged by Credit Suisse Group AG.
Companies taken over in buyouts are often loaded up with debt by the firms acquiring them, meaning the buyer doesn’t have to raise the money for the deal in its own name. Malone agreed to buy Virgin Media for $16 billion, allowing his company to vie with Comcast Corp. (CMCSA) to be the largest cable operator and to take on Rupert Murdoch’s U.K. British Sky Broadcasting Group Plc (BSY).
“It’s great for high yield, this is one of the most golden companies in the market,” said Andrew Wilmont, the head of European high yield at broker and fund manager Alcentra Ltd. in London. “Virgin’s in a nice stable industry and it’s a company that has been very profitable and known for decades.”
The Hook, England-based pay TV company will sell the bonds on Feb. 8 through its Virgin Media Finance Plc unit following investor presentations today and tomorrow in Europe and the U.S., the person with knowledge of the deal said.
The bonds comprise senior secured notes maturing in 2021 that are redeemable by the borrower after four years, and an unsecured portion due in 2023 with a call option in year five.
The first tranche of bonds will be rated Ba3 by Moody’s Investors Service, three levels below investment grade, and an equivalent BB- by Standard & Poor’s, the person said. The second portion of notes will be rated two steps lower at B2 and B.
S&P placed Virgin Media’s BB corporate credit rating on “negative” watch today. The acquisition by Liberty will increase the U.K. company’s leverage to a level approaching about four to five times debt to earnings before interest, taxes, depreciation and amortization, or Ebitda, S&P said.
Virgin Media today reported 2012 income of 261.4 million pounds from continuing operations before taxes. The company had a 920 million-pound net loss in 2008.
The media company’s loan is divided into six and seven-year tranches that will be marketed to banks and institutional investors as well as a six-year credit line, two people with knowledge of that deal said. This financing will also be raised in dollars and pounds, and part of it will have an interest margin of 325 basis points, or 3.25 percentage points, more than the London interbank offered rate, the people said.
Barclays Plc, BNP Paribas SA, Bank of America Corp. and Deutsche Bank AG are helping manage the bonds and loans.
The cost of insuring against losses on Virgin Media debt using credit-default swaps fell as much as 26 basis points to 360, after soaring 54 percent yesterday before the acquisition by Englewood, Colorado-based Liberty was announced.
The swaps pared their decline to 383 as of 1:13 p.m. in London, prices compiled by Bloomberg show. Virgin Media shares trading in the U.K. capital fell 0.8 percent to 2,865 pence, after gaining 17 percent yesterday.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.