- M&A surge contributed to $100 billion bonds and loans
- Altice announces acquisition as low rates lure issuers
Europe’s junk-rated companies are raising funds for mergers at the fastest pace in at least six years.
Buyout deals accounted for 61 percent of the almost 24 billion euros ($26.6 billion) of leveraged loans issued this year, the biggest proportion since the same period in 2009, according to S&P Capital IQ Leveraged Commentary & Data. Companies are also funding deals in the bond market, where sales are set for a record, according to Fitch Ratings.
French billionaire Patrick Drahi’s Altice SA is the latest high-yield borrower to announce an acquisition as companies take advantage of rates pushed toward record lows amid European Central Bank economic stimulus. The average yield for junk-rated euro-denominated bonds is 3.91 percent compared with a a record low of 3.45 percent set in June, according to Bank of America Merrill Lynch index data.
“Leverage is being more actively encouraged by shareholders,” said David Newman, the London-based head of global high-yield debt at Rogge Global Partners Plc, which manages $47.5 billion. “Combined with low interest rates, the stage is set for an increase in M&A.”
Companies have raised more than 100 billion euros this year from leveraged loans and junk bonds, according to data compiled by Fitch and S&P Capital IQ LCD. Global M&A volumes this year are 12 percent higher than at the same point in 2014, and on track to beat last year as the busiest for dealmaking since 2007.
“Corporates are confident that they can comfortably get financing secured for these transactions,” Henrik Johnsson, head of European high-yield and loan capital markets at Deutsche Bank AG in London, said. “Investors are still very hungry for leveraged debt.”
Altice agreed to buy 70 percent of Suddenlink Communications in a deal that values the U.S. cable company at $9.1 billion, including debt, the Luxembourg-based company said in a statement on Wednesday.
It follows auto parts maker ZF Friedrichshafen AG’s sale of 2.25 billion euros of notes last month, the first bond offering in its 100-year history, to help pay for its acquisition of U.S.-based TRW Automotive Holdings Corp.
Drahi’s investment vehicle also made a takeover approach for Time Warner Cable Inc., according to a person familiar with the matter, who asked not to be identified because the information is private. The Morocco-born billionaire’s company bought Vivendi SA’s French phone unit SFR using euro and dollar bonds and loans last year.
“Given the U.S.-European angle, you’re probably going to go to both geographical markets with both bonds and loans,” Michael Smith, a London-based high-yield debt capital markets originator at Investec Bank Plc, said by phone. “$9.1 billion for Suddenlink is pretty significant.”
Altice’s 2.1 billion euros of bonds due May 2022 fell 2 cents on the euro on Wednesday to 103 cents, the biggest decline since the notes were issued in April last year, according to data compiled by Bloomberg. Units owned by competitor Liberty Global Plc were the best performers in the European non-investment grade bond market today. Unitymedia KabelBW GmbH’s 700 million euros of securities due January 2027 gained 2.4 cents to 96.8 cents, the data show.