LONDON, Dec 1 (IFR) - Telecoms group Altice could raise up to 5.7bn (US$7.09bn) in fresh debt to fund the purchase of Grupo Oi's Portuguese operations, according to sources close to the deal.
The deal is the latest in a two-year acquisition spree that Altice has mostly financed with junk-rated debt. In April, it raised the largest ever high-yield bond financing in history, a US$16.7bn-equivalent transaction, to finance Numericable's acquisition of SFR.
Altice bid 7.03bn for the group last month, but asked its underwriting banks to up their commitments on Thursday, so it could boost its offer to 7.4bn to beat a rival bid from private equity funds Apax and Bain.
The 7.4bn bid includes a 500m earn out related to Portugal Telecom's future revenue generation and around 1.1bn to 1.2bn of pension liabilities.
This leaves a 5.7bn cash consideration, the "majority if not all" of which will be debt, according to a banker on the deal, who expects the bulk to be raised in the dollar high-yield bond market.
"The cheapest cost of capital is in dollar bonds, and Altice's CFO Denis Okhuijsen has favoured that market in the past," he said.
Most of the financing for Numericable's acquisition of SFR was raised in the dollar bond market, for example, even though both companies are French with purely euro cash flows. Numericable and SFR now make up the company's Altice France business.
Altice can raise debt for the Portuguese acquisition at more than one entity, however. The Portuguese assets will be bought by Altice International, which has acquired companies from Israel to the Dominican Republic using a mix of secured and unsecured bonds as well as syndicated loans.
But as with the Numericable-SFR deal, the Altice SA listed holding company could also be used to raise additional debt.
This company sits above Altice France and Altice International, and raised 2.075bn and US$2.9bn of bonds to back part of Numericable's purchase of SFR.
"When the first bids went through, the company said that most of the debt would be raised at Altice International," said the banker.
"But you have to remember that the amount they need to raise has been increased since then."
The size of debt Altice International can raise is somewhat limited by covenants under its outstanding bonds and loans, which restrict secured leverage to 3x and total leverage to 4x Ebitda.
Altice International's total leverage stands at around 3.7 to 3.8x, but under its bonds it has additional debt baskets that it can use to go beyond the 4x threshold.
"Most people are assuming that if they stretch those baskets, they can take leverage up to mid-to-high 4x," said the banker.
Altice International has employed this strategy in the past, using additional baskets to go past the 4x threshold when it acquired businesses in the Dominican Republic a year ago.
Altice will now spend three weeks in discussions with the Portuguese asset's Brazilian owner Grupo Oi to finalise the acquisition and complete due diligence.
Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley are the lead banks that have underwritten the debt raise, although other banks could join the process later. (Reporting by Robert Smith; editing by Helene Durand and Sudip Roy)