Ratings for United Group B.V.'s planned €980 million two-part secured bond sale are confirmed at B from S&P Global Ratings and B2 by Moody's, with both agencies assigning stable outlooks. The transaction — which will be split between €580 million of eight-year (non-call three-year) fixed-rate notes and €400 million of seven-year (non-call one-year) floating-rate notes — will fund the acquisition of Greek telecoms operator Wind Hellas.
Global coordinator and sole physical bookrunner J.P. Morgan held a global investor call on Jan. 10, with a roadshow planned through today. Initial price thoughts, or IPTs, were given on Jan. 10 at 5% area for the fixed tranche and high-4% for the FRNs.
S&P Global Ratings said in a report published Jan. 11 that the acquisition, which was announced in August 2021 for an enterprise value of €980 million and is expected to close this week, will increase the company's "scale and geographic diversification" and create potential cost synergies as the group combines with United Group's existing Greek pay TV business Nova.
United Group's lack of a market-leading position in most of its core markets and exposure to "small and riskier markets" remain key downside risks, Ratings said. The agency also highlights the company's high debt-to-EBITDA level, which is forecast to be 5.5-6x for 2022.
Moody's meanwhile said its B2 secured rating reflects the company's "strong operating performance" and its "considerable improvement" in scale, but also highlights high Moody's-adjusted leverage of around 6x. This is, however, expected to fall to around 5.3x by 2023 following completion of the transaction, Moody's says.
Bond financing for the takeover will be issued at the United Group operating company and will result in OpCo net leverage of 4.7x based on September 2021 adjusted EBITDA after leases of €969 million, which the company says is in line with leverage reported prior to the acquisition.
BC Partners-backed United Group's debt goes out to 2028, with the group having last been in the high-yield market in July 2021 with a €300 million offering of seven-year (non-call three) notes to support its acquisition of Croatian operator Optima Telekom. Those 4.625% notes were quoted on announcement of the new bond deal in a 99.105/99.8 market for a 4.84% bid yield, according to Tradeweb quotes.
The group has substantial quantities of debt approaching near-term calls, with its 4.875% notes due 2024 and 4.125% bonds due 2025 callable in February and January, respectively. The 2024 notes currently trade at a slight premium to call, while the 2025s are quoted at a slight discount.
In a call with investors this week, the company declined to confirm whether it planned to exercise the calls on these bonds, but said it took a proactive approach to its capital structure and will look to opportunistically refinance "when it makes sense economically." The company said its focus is on "getting the best possible financing terms for the Wind Hellas acquisition."
Outstanding Wind Hellas senior secured and debt and revolving credit facilities will be canceled in connection with acquisition, including the €525 million of 4.25% notes due 2024 which the company priced in 2019, introducing a novel portability feature to the high-yield market which allowed portability provided the new owner supplied a 35% equity cheque to support a takeover. Wind Hellas generated last-12-months to September 2021 adjusted EBITDA after leases of €125 million, according to a United Group presentation.
Remaining in place is a Wind Hellas 5.5% PIK-toggle corporate bond loan due 2025, which can extended to 2027 and has €488.7 million outstanding plus accrued interest of €1.1 million as of September 2021.
In assigning its B2 rating to the new secured notes, Moody's noted the "recurrent dividend outflows" to service interest on the PIK notes, which will sit outside the restricted group at Summer BidCo BV, as costs which will have a material impact on the group's free cash flow generation.
The new fixed-rate tranche will feature an annual 10% special call at 103 in the non-call period and a 40% equity claw.
Citigroup, Credit Agricole CIB, Credit Suisse, KKR and Morgan Stanley are additional joint global coordinators and joint bookrunners.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.
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