May 15, 2015 / 5:42 PM / 2 years ago

Bankers clamour for jumbo Charter debt deal

NEW YORK, May 15 (IFR/TRLPC) - Banks are lining up a debt package of at least US$25bn for cable company Charter Communications, hoping the company will resume its pursuit of Time Warner Cable.

Ever since Comcast dropped its US$45bn bid for TWC last month, expectations have been that Charter - which initially lost out to Comcast’s bid last year - would make another move.

Charter is talking to the same four underwriters that provided a US$24bn debt commitment for the deal a year ago: Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank and Goldman Sachs.

“The M&A talks are still going on and we don’t have timing,” one banker said. “Once the M&A decision is reached, it should be quick to move to next steps, as the banks know the company pretty well.”

The banker said he expected two-thirds of the package to consist of bonds, but that the overall structure - such as the split between leveraged loans and high-yield bonds, and secured and unsecured debt - was yet to be finalised.

Liberty Broadband, meanwhile, has said it would raise equity or put up cash to preserve its 26% stake in Charter and contribute to the bid for TWC. This would theoretically allow Charter to keep leverage at levels that would satisfy both regulators and investors.

“We have been approached by many potential partners interested in investing alongside us with Charter,” Liberty Broadband CEO Greg Maffei said on an earnings call this month.

“If Charter needed more capital and if Liberty were to participate, there would be other ways to go to the market to increase stakes at relatively low costs.”

KEEP IT FRIENDLY

Charter is taking its time to ensure talks stay friendly and avoid the hostile situation it encountered last time round - especially as TWC is concerned about falling into junk status. Charter is rated BB- by S&P and Ba3 by Moody‘s, but Time Warner is rated BBB/Baa2.

Other banks could also join the line-up on the financing side if an M&A deal does go ahead - especially as the amount of debt involved is so large.

A high-yield deal of US$10bn-$15bn, for example, would be one of the largest junk bonds ever, and could top Numericable’s record US$10.88bn transaction printed in April 2014.

Investors are confident that a deal of that magnitude could easily be absorbed by the market, even in the face of recent jitters about rates volatility.

“There’s been a shortage of supply,” said one high-yield investor. “So it would be nice to see a large transaction come, especially in an industry that is well understood and from an issuer that is pretty well known.”

The high-yield new issue market has been on a tear this year, much of it driven by large M&A deals - and bankers are hoping the strong momentum will continue.

Investors prefer large transactions such as the potential Charter deal, as such trades tend to be more liquid in times of market volatility like the current situation. Yet the buyside is also mindful about leverage.

“The devil is in the details about the structure and the specific assets,” the investor said. “But I can tell you that people would be happy to see it.” (Reporting by Mariana Santibanez at IFR and Michelle Sierra at TRLPC; Editing by Natalie Harrison, Marc Carnegie and Matthew Davies)

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