Billionaire Drahi's Surprise Junk-Debt Binge Caps Chaotic Monthsby and
Altice and affiliates borrowed $12 billion in four offerings
Company switched from funding purchase to refinancing debt
A tumultuous few months in the junk-debt market ended with a feeding frenzy. And then another. And then two more.
Investors were ravenous for debt linked to billionaire Patrick Drahi’s cable and telecom giant Altice NV. By Tuesday, they’d bought up four offerings totaling $12 billion in just two weeks, including the largest single junk-bond deal ever, which the company plans to use to refinance older obligations.
And still, many buyers were left empty-bellied, clamoring for more. Their appetite may signal that demand for junk bonds is returning after the biggest slump in years, a shift that Altice and banks led by JPMorgan Chase & Co. were able to exploit.
“Most of us weren’t expecting so much Altice all at once,” said Ken Monaghan, a money manager at Amundi Smith Breeden in Durham, North Carolina. “They’ve become the Baskin-Robbins of the high-yield market. If you don’t like a flavor of bonds you want, you can wait for the next one out in a day or two.”
The two-week refinancing blitz enabled Altice to postpone debt repayment. For the banks on the deals, the roughly $120 million in fees for the bond and loan sales were a ray of light after a gloomy quarter on Wall Street due in part to shrinking fixed-income revenue. Altice and JPMorgan declined to comment.
In February, as oil prices plunged to decade lows, investors grew leery of junk bonds. Average borrowing costs for speculative-grade companies rose to the highest level in more than six years, and new debt deals slumped to the slowest pace since 2009.
The lull meant that investors were sitting on cash, waiting to put it to work, said Christian Hoffmann, a money manager at Thornburg Investment Management Inc. in Santa Fe, New Mexico.
Interviews with people familiar with the process show how a failed merger paved the way for the company’s burst of borrowing.
Orange SA and Bouygues SA were engaged in months-long negotiations to consolidate the French phone business. Numericable-SFR SAS, Altice’s telecom unit, planned to purchase some Bouygues assets if a deal were to happen and was arranging financing.
After April 1, when the deal collapsed, Altice’s stock plunged.
Bankers didn’t give up. They’d worked with Altice on a bond prospectus to fund the company’s part of the Orange-Bouygues deal. Investors, who anticipated that Drahi’s company might fork out as much as $4.5 billion for the Bouygues assets, had lightened up on existing Numericable debt to make room for new issuance. The bankers proposed going ahead with a debt offering, the people said.
Bankers in New York and London set out to rework the offering document. Any reference to the acquisition was replaced with refinancing as the goal for the deal. Not much else needed to be changed.
A week later, the company was in the market with a $2.25 billion bond offering for Numericable. The deal attracted a surprising $15 billion in orders, so it was boosted to $5.2 billion, with more than 400 accounts participating in the deal, the people said.
Altice didn’t stop there. The company sensed an opening. It marketed a $2.6 billion loan the next day, with a euro portion to satisfy demand from European investors.
After a week’s respite, Altice units returned to the market with back-to-back offerings that grew to $4.25 billion. The company, which has fueled its growth with borrowed money, has pushed any meaningful maturities to at least 2022.
The resurgence of debt deals indicates that the door might be opening for other junk-rated issuers as borrowing costs drop, said Alex Barth, co-head of high-yield capital markets at Deutsche Bank AG in New York.
“There’s significant demand for sectors that are stable and not exposed to commodities,” Barth said. “For now, you’ll continue to see higher quality names as the market still feels a little bifurcated. But with the recent tightening, it feels like there’s potential for energy names to test the market.”