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Telenet Bonds Fall Most in Six Months on Liberty Funding Concern

Feb. 7 (Bloomberg) -- Telenet Group Holding NV bonds dropped the most in six months on concern Liberty Global Inc., the cable operator’s biggest shareholder, will seek to increase dividends to help finance the acquisition of Virgin Media Inc.

Telenet’s 6.25 percent bonds due 2022 dropped 1.8 percent, or two cents on the euro to 103.85 at 11:26 a.m. in London, their biggest decline since August 16, Bloomberg Bond Trader prices show. The bonds of the Mechelen, Belgium-based company were the biggest fallers in Bank of America Merrill Lynch’s Euro Non-Financial High Yield Constrained Index.

Telenet faces a downgrade from Moody’s Investors Service if Liberty Global decides to “make a shareholder distribution” that would increase leverage beyond the limit of its current high yield Ba3 grade, the ratings firm said in a statement. Liberty agreed to pay $16 billion for Virgin this week to vie with Comcast Corp. as the world’s largest cable operator.

“Generally the market sees Liberty Global re-leveraging its European subsidiaries UnityMedia, UPC and Telenet to the maximum allowed to help finance the Virgin deal,” said Henry Craik-White, a senior investment analyst at ECM Asset Management Ltd. in London. “Currently Telenet is the furthest away from these leverage targets so their bonds have more downside.”

Virgin is marketing $3.6 billion of junk bonds to help finance the transaction. It plans to sell 1.1 billion pounds ($1.7 billion) of senior secured notes maturing 2021 to yield about 6 percent and $1 billion of similar-maturity bonds at 5.25 percent to 5.5 percent, according to a person with knowledge of the deal, which is expected to price tomorrow.

Virgin is also offering 300 million pounds of senior notes due 2023 at about 7 percent and $450 million of same-maturity debt at 6.25 percent to 6.5 percent, the person said.

Tesco Debt

Tesco Plc, the U.K.’s largest grocer, is marketing its biggest pound-denominated bond for two years. It plans to sell 500 million pounds of senior secured amortizing bonds due 2044 to yield about 250 basis points more than gilts, a person with knowledge of the deal said. The bonds are being issued through Tesco Property Finance Plc.

In credit derivatives markets, the Markit iTraxx Europe Index of credit-default swaps linked to 125 companies with investment-grade ratings fell two basis points to 116. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly speculative-grade ratings declined eight basis points to 446.

The Markit iTraxx Financial Index of swaps on 25 banks and insurers dropped two basis points to 156.

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.

To contact the reporter on this story: Hannah Benjamin in London at hbenjamin1@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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