Billionaire Patrick Drahi is winning friends in the junk-bond market, rewarding investors who bought into his record $17 billion offering yesterday with a profit of more than $490 million.
Prices surged as the securities started trading, with $2.9 billion of Altice SA (ATC)’s 7.75 percent eight-year bonds climbing more than 4 cents on the dollar, according to data compiled by Bloomberg. They were offered at face value.
Demand soared after Paris-based Drahi offered yields that were higher than market rates to fund the $23 billion acquisition of Vivendi SA’s French phone business. The coupon on the Altice bonds compares with an average 5.89 percent for similarly-graded debt securities due in about eight years in the Bloomberg High-Yield (BUHY) Corporate Bond Index.
“This deal ticks many of the right boxes,” said Mitch Reznick, the co-head of credit at Hermes Fund Managers Ltd. in London, which oversees about $40 billion and bought some of the notes. “The bonds are trading up substantially today on the combination of familiarity with investors, value, demand for bonds in the primary market and, importantly, the reallocation of some supply of this deal out of Europe and into the U.S.”
Drahi is using proceeds of the bond sales, completed through his Altice and Numericable Group SA units, to challenge market leader Orange SA (ORA) and Bouygues SA’s phone unit by offering mobile, landline, TV and Internet packages in France.
Altice’s 2.075 billion euros ($2.8 billion) of 7.25 percent secured notes rose 4.1 cents to 104.1 cents on the euro, Bloomberg prices show. Numericable’s 1.25 billion euros of 5.625 percent senior secured notes due in 2024 rose 2.6 cents to 102.6 cents on the euro.
“The size of financing that’s doable in the European leveraged finance market has moved to a new plain,” said Ray Doody, London-based head of acquisition and leveraged finance in Europe at JPMorgan Chase & Co., one of the deal arrangers. “The paradigm of acquisition finance has changed and, I believe that for the right credit, in the right sector with the right leverage levels, a deal in excess of 25 billion-euro equivalent for a European asset is realistic in the European leveraged finance market.”
Investors reaped gains after Verizon Communications Inc.’s record $49 billion bond issue last September. The company’s $4 billion of 4.5 percent debt due in 2020 jumped about 3.5 cents on the dollar on its first day of trading.
The U.S. Securities and Exchange Commission is investigating the way the biggest banks allocate corporate-bond offerings and whether they are giving preferential treatment to certain clients.
While those complaints aren’t new, the stakes have multiplied in the five years since the credit crisis as unprecedented central bank stimulus pushed government-bond yields to record lows and drove investors into higher-yielding assets.
In addition to bond-issue allocations, the SEC’s review also includes the banks’ trading of bonds after offerings, according to a person with knowledge of the matter, who asked not to be named because the probe is confidential. The inquiry is in early stages and may not lead to any enforcement action, the person said last month.
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