KKR-Era Debt Is Displaced by Cheaper Bonds at TDC: Nordic Credit

TDC A/S plans to sell new bonds at interest rates it says are likely to be much lower than those paid five years ago while it was owned by a group of private equity buyers including KKR & Co.

“A lot has happened since we issued one of the bonds in 2009,” Pernille Erenbjerg, chief financial officer at Denmark’s biggest phone company, said in an interview. “It’s now a new era, both for TDC, which is no longer controlled by private equity funds, and for the bond market, where yields have just gone down.”

TDC, based in Copenhagen, has two euro-denominated bonds maturing next year. One carries a 3.5 percent coupon, the other pays investors 5.875 percent. The company plans to replace those as early as this year with euro notes and, based on “feedback,” expects coupons to be set at about 2.5 percent, Erenbjerg said.

TDC has more than 1 billion euros ($1.3 billion) in bonds, or about 35 percent of its debt, maturing over the next 16 months.

“We will definitely keep our position as a company that’s mainly funded via bonds,” 46-year-old Erenbjerg said. “We have a good credit rating and a size which makes it very sensible for us to go to the euro-bond market, where we have high liquidity.”

TDC Ratings

TDC is rated Baa2, two steps above junk, at Moody’s Investors Service and has similar BBB grades at Fitch Ratings and Standard & Poor’s. The company, which is struggling to lift its revenue as Nordic competition grows tougher and regulatory restrictions increase, may cut dividend payments to preserve its credit rating, Nordea Bank AB said in an Aug. 8 note.

“Our credit rating is very, very important to us, we will defend it with all we have,” Erenbjerg said. “It’s always a balancing act and we do have a stated goal of paying 90 percent of cash flow in dividends. The dividend policy can be changed since it’s a policy and not a law, but we have no plans to ask the board to change it.”

The phone operator cut dividends to preserve its credit metrics in 2012 amid higher investment costs, she said.

TDC’s shares plunged 8.9 percent on Aug. 7, the most in five years, after it said tougher regulation on roaming and broadband wholesale prices will increasingly hurt sales and earnings from next year. It also said it lost two public contracts to low-price competitors.

KKR Debt

TDC’s 3.75 percent 500 million-euro bond due in 2022 has delivered investors an annualized return of about 17 percent this year, compared with an annualized return, including reinvested dividends, of 3.2 percent for the shares.

TDC’s new bonds will probably have a maturity of seven to 10 years, Erenbjerg said. They may not exactly match the amount coming due, she said.

TDC’s 5.875 percent 274 million-euro bond due Dec. 16, 2015, was issued in 2009 when the company was controlled by funds including KKR.

The timing of the next bond sale could be affected by market turmoil stemming from the conflict in Ukraine and Russia, Erenbjerg said.

“It’s definitely something we’ll consider,” she said. “These things change very quickly and markets can always turn from one day to the next. However, it seems that so far the impact on corporate bond markets has been limited.”

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