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By Robert Smith
LONDON, Feb 16 (IFR) - The merger of Liberty Global's Ziggoand Vodafone's Dutch operations should result in billions ofeuros of new high-yield bonds or leveraged loans, according tomarket participants.
Liberty Global and Vodafone are forming a 50-50 jointventure, combining Netherlands broadband and cable TV companyZiggo with Vodafone's Dutch mobile operations. Vodafone ismaking a 1bn cash payment to Liberty Global and contributingits Netherlands business to the JV on a debt and cash-freebasis.
The new joint venture will target leverage of 4.5-5.0xcovenant Ebitda - in line with Liberty's other European business- and expects to raise new debt financing to reach this target.
The company said that proceeds from the financing would bedistributed equally between Vodafone and Liberty Global.
One investor said this should translate to around 2bn ofnew debt with another saying the figure could be as large as3bn. Barclays credit research analysts said that 2bn of newissuance would bring leverage in line with 4.75x.
While Liberty has a history of executing new debt deals veryquickly after announcing M&A trades, a leveraged finance bankersaid that he was not expecting a new deal imminently.
"There's still some antitrust risk in there and if theyalready had committed financing I think they would've announcedit in the press release," he said.
The second investor noted that Ziggo is a regular issuer inthe leveraged loan market and could turn to that market ifconditions in high-yield are unappealing. The banker said thatZiggo traditionally raises around 80% secured financing and 20%unsecured.
Market participants have long anticipated a deal betweenLiberty Global and Vodafone in some form, although talks aboutwider asset swaps across Europe broke down in September.
"This deal is alright - although I'd argue that 5.0xleverage is less appropriate for their weaker Dutch businessthan it is for Unitymedia or Virgin," said the first investor.
"The reason this is interesting though, is whether it'll bethe hors-d'oeuvre before the main course arrives."
He said that the success of the deal could determine whetherthe two companies pursue similar strategies in Germany and theUK, where Liberty Global owns Unitymedia and Virgin Media,respectively.
The second investor said that the antitrust approval processfor CK Hutchison's US$14bn purchase of O2 from Spain'sTelefonica could determine what happens in the UK.
"The fact that T-Mobile Netherlands was also up for salegave Liberty a strong bargaining chip in negotiations withVodafone here," he said. "If the O2-Hutch deal falls through,then O2 would be back on the market and would give them similarleverage over Vodafone in the UK."
He noted that the terms of the deal allow either JV party tobuy the other out after four years, which could potentially seeZiggo's bonds return to investment grade if Vodafone buys thewhole business.
Ziggo's bonds traded up on news of the deal, with its 400m4.625% 2025 note strengthening a point to 93.70 on Tuesdaymorning. (Reporting by Robert Smith, editing by Alex Chambers and IanEdmondson.)
