LONDON, Jan 27 (Reuters) - Generous pricing on an 825 million euro-equivalent ($936.87 million) loan backing telecoms group Altice’s acquisition of Grupo Oi’s Portuguese operations is attracting investors into the deal, banking sources said on Tuesday.
The loan forms part of a wider financing, including 4.6 billion euros-equivalent of bonds that are already multiple-times oversubscribed.
Loan investors are not as familiar with the credit as some bond investors and have undertaken research to understand it better, but the loan terms, described as ‘priced to go’ by many loan bankers is helping to tempt many into the deal, the sources said.
The loan, which is roughly split between euros and dollars is guided at 475 basis points (bp) to 500bp over Euribor on the euro tranche and 500bp to 525bp over Libor on the dollar tranche, both at 99 Original Issue Discount, with a one percent Euribor/Libor floor.
There is a 50bp-75bp premium on the euro loan as the presence of dollars has pushed pricing wider, due to the recent softening in the US loan market.
“The US dollar loan market has backed up and because there are dollar and euro loans together, the relative value has to work. The dollar loan is dragging the euro loan wider,” a leveraged banker said.
Lenders have been asked to commit to the deal by Jan. 29 and pricing could tighten depending on how successful it is in syndication.
The deal is also expected to become the first euro loan to price inside a dollar loan on an interest margin basis, one of the banking sources said.
Portugal Telecom has spent the last 10 years investing in development and infrastructure such as fibre optic cable and 4G and Altice is pitching the asset as more of a cable operator than an incumbent telco operator.
This investment and development means Portugal Telecom should be attractive to loan investors as capital expenditure is low. Altice is also planning to cut costs, improve margins and renegotiate with suppliers to lead to greater cash flow generation.
Altice is aiming to raise Portugal Telecom’s 39 percent Ebitda margin to around 50 percent.
“All the infrastructure on the deal is there already. There is not a huge capex programme and so investors should enjoy a telco deal without a big capex drag. It should be popular,” an investor said. ($1 = 0.8806 euros) (Editing by Christopher Mangham)