Lenders Dislodge Bondholders in Biggest Polish Debt Refinancing

Poland’s largest media and telecommunications company is sidelining bondholders in the country’s biggest debt refinancing.

Out of 13 billion zloty ($3.5 billion) of debt, Cyfrowy Polsat SA seeks to borrow only 1 billion zloty from the bond market, two people familiar with the plans said April 24. The company, which is replacing liabilities including almost $1.1 billion of junk-rated Eurobonds paying interest above 11 percent, may save as much as 400 million zloty a year, according to a BESI Grupo Novo Banco research report.

Lenders are luring companies as they seek to utilize cash reserves that topped required levels by 2 percentage points in 2014. While Polish corporate sales of local and international bonds dropped 59 percent this year, lending jumped 7 percent, according to data compiled by Bloomberg, Fitch Ratings and the Polish Financial Supervision Authority.

“It’s a logical step for Cyfrowy to look for financing in Polish banks,” said Maciej Tarnawski, head of credit markets at Bank Zachodni WBK SA in Warsaw. The company “is well known among lenders and it’s no longer treated as a high-yield borrower, that’s why it would be able to get cheaper financing than on the Eurobond market,” he said by phone April 24.

Domestic Funding

Cyfrowy’s debt plans show Polish lenders are “liquid enough for big deals,” limiting the need for foreign financing and Eurobonds, Pawel Borys, the head of strategy at PKO Bank Polska SA, said by phone on April 24. Polish companies issued 125 million euros ($136 million) of foreign bonds this year, a 10th of the sales from the same period of 2014, data compiled by Bloomberg show.

The company is refinancing debt that Zygmunt Solorz-Zak took to fund the purchase of mobile-phone operator Polkomtel Sp. z o.o. in 2011, in what still is Poland’s biggest leveraged buyout, Cyfrowy said in a statement on April 21. The second-richest Pole merged both companies in 2014, saying savings from the transaction may reach 3.5 billion zloty.

The billionaire has a history of opting for zloty bank debt, rather than bonds, for refinancing. Last year, Cyfrowy swapped its own and Polkomtel’s Eurobonds with a 3 billion-zloty loan, while ZE PAK SA, a utility Solorz-Zak controls, agreed to a 10-year loan with banks in 2013.

The Warsaw-based company is waiting for bank offers in May and plans to complete the deal with lenders before September, according to the two people familiar with the process, who asked not to be identified because the information isn’t public.

Market ‘Reality’

Cyfrowy plans to exercise a call option on Jan. 31, 2016, for 542 million euros of 11.75 percent notes due in January 2020 and $500 million of 11.625 percent securities that also mature in 2020, the people said.

The yield to next call on the euro-denominated bond stood at 2.64 percent at 10:38 a.m. in Warsaw, down from as much as 4 percent in January, with the security trading at 113.2 cents on the euro, compared with the call price of 105.88.

Olga Zomer, a spokeswoman at Cyfrowy, declined to comment on refinancing details when contacted by phone on Friday.

The dominance of loans in Cyfrowy’s refinancing shows the limits of country’s fledgling corporate bond market, where only three companies sold more than 1 billion zloty of bonds in a single issue and none more than 2.5 billion zloty.

“The reality of Poland’s local bond market is that the amount that Cyfrowy is seeking to refinance would be a record,” Ludwik Kempnerski, the head of syndicated loans at Bank Handlowy SA, said by e-mail on April 24. “Without banks, any potential bond sale would need to be expensive to attract enough non-banking investors.”

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