By Paul Kilby
NEW YORK, Nov 17 (IFR) - Caribbean telecom operator Cable &Wireless Communications launched a consent solicitation forUS$750m of its 2022s after Liberty Global agreed to buy thecompany in a deal valued at US$8.2bn including debt.
The company is asking holders to waive any obligation by theissuer, Sable Finance - a C&W subsidiary - to offer a 101 changeof control option within 30 days of the proposed acquisition.
If holders of 100% of the notes agree to consent before theexpiration date of November 24, they will receive US$30 perUS$1,000 principal amount.
The fewer bonds offered in the consent, the higher thepayment. Creditors will receive US$40 if 75% of the bonds aretendered, and US$59.88 if just 50.1% are tendered.
The bonds have rallied about 1/8 of a point to trade onTuesday at a mid-market price of 101.50.
Liberty has a US$790m senior unsecured bridge facility inplace to exercise the change of control option at 101.00 in theevent that the solicitation fails, according to CreditSights.
CreditSights analysts like the consent premium but recommendlightening exposure to the unsecured 2022s amid expectationsthat a more leveraged company will emerge from the acquisition,possibly subordinating the notes.
Liberty is likely to embark on more M&A after creating aregional platform in Latin America and the Caribbean, changingthe risk profile for creditors who had held C&W debt, theresearch shop said.
Target leverage for the new group is 4-5x, up from 2.5x-3x,but CreditSights calculates pro forma net leverage at around4.7x before any synergies are realized.
"If a Liberty Global deal was to happen, there would be theneed to issue more debt, which could present a better entrypoint for the credit," CreditSights said.
Goldman Sachs and BNP Paribas are acting as solicitationagents.
Cable & Wireless is also arranging a US$800m credit facilitythrough leads Bank of America Merrill Lynch to refinance US$400m8.75% senior secured 2020s issued by Sable and to fund a specialdividend to C&W shareholders.
The telco also has about US$1.25bn of outstanding 7.375%senior 2021s issued by subsidiary Columbus International, butthese are less likely to be impacted by the Liberty purchase inthe near term.
An incurrence test of 4.25x on a subsidiary that already hasgross leverage of 4.4x means that the issuer can't raise moredebt, said Michael Chakardjian, senior analyst at CreditSights.
An expensive make-whole provision makes it unlikely that theissuer will try to retire the bonds - at least until the firstcall date in March 2018, when they are callable at 103.688.
The bonds have rallied since the discussions of the mergerwere announced to trade on Tuesday at 104.50-105.50, making theexercise of a 101 change of control option unlikely.
"I would imagine that Liberty will eventually want to removethe Columbus bucket but will wait because it is too expensive,"said Chakardjian. (Reporting By Paul Kilby)
