* Polish mobile owners strip out large dividend
* Rapid deleveraging bolsters risky PIK deal
* Investors comfortable on coupon payments
By Robert Smith
LONDON, Aug 1 (IFR) - Play sold the largest public euro payment-in-kind note this year to purely fund a dividend on Wednesday, returning more than EUR400m of cash to its Greek and Icelandic owners.
The EUR415m 5.5NC1.5 PIK toggle, rated Caa1/CCC+, came a mere six months after the Polish mobile operator's debut bond deal and is the second time that Play's owners have raised debt to strip cash out of the business this year.
While Agrokor raised a larger EUR485m PIK loan in May, the Croatian food producer used the bulk of the money to fund an acquisition.
Play was able to bring the PIK as it has rapidly delevered since its January debut. Net leverage at Play dropped from 4.7x to 4.1x by the end of March, but is expected to fall to less than 3.7x when the company's results through to June are published, according to a banker on the deal.
Leverage through the PIK has been taken to 6.04x, however.
Play has been able to delever through its rapid growth, having gained more mobile subscribers in the last five years than any other EU operator. Having only entered the Polish mobile market in 2007, the group now has a 19.3% market share.
"The company is effectively monetising its performance over the last six months," said the banker.
Some investors grumbled at this approach, however.
"The Play business is decent and there is equity value there, but it's annoying to see them monetise it in such an opportunistic way," said an investor.
"I'd prefer to see them IPO the business."
The banker said that the PIK's short 1.5-year call protection suggests that Play's owners are thinking about a potential exit.
"They're planning an exit at some point, and the way the deal's call protection has been structured suggests that this could come in the next 18 months or so," he said.
A second banker on the deal, however, said that the PIK should not necessarily been seen as a bridge to an IPO.
"There's the IPO story and M&A talk in the background, but this is really a bridge to a refi," he said.
"The non-call period ends at the same time as the opco bonds, and by that time they should have delevered enough to refinance the debt at much more favourable rates."
Play's EUR900m-equivalent debut bond deal in January also had a dividend component, with EUR170m of the proceeds placed in escrow while Icelandic fund Novator - one of Play's owners - negotiated a buyout of its co-investors.
This money was released from escrow this month, allowing a trust owned by Bjorgolfur Thor Bjorgolfsson and his family to take full control of Novator. Bjorgolfsson is well known for owning a large stake in Icelandic bank Landsbanki before its collapse in 2008.
Novator owns 49.7% of Play, with the remainder held by a Greek investment fund called Tollerton. Tollerton is in turn 80% owned by Olympia, which is controlled by Greek businessman Panos Germanos.
Germanos has experience in the mobile sector, having once owned the Germanos Group - an electrical retailer that runs the largest mobile distribution chain in Poland.
Germanos sold his stake in that business to a subsidiary of Greek telecom firm OTE in 2006, and the following year Greek prosecutors brought criminal charges against him in connection with the sale. These charges were later dropped, although Germanos is subject to other investigations, including one related to bribery in Greece's armament programme.
Germanos has pleaded not guilty at appearances in connection with these charges, but the bond's offering memorandum specifies that "there can be no assurances that judicial panels do not decide to bring an indictment" in these cases.
Play announced the PIK on Tuesday afternoon, with investor calls on Tuesday and Wednesday. Leads then set price talk of 8% area cash yield on Wednesday, to be issued with an OID of 99.
The bond was then issued at 99 with a 7.75% cash coupon, to yield 7.959%. The bond has a 75bp step-up if the PIK option is used. The deal traded well initially in the secondary market, bid nearly a point higher at 99.75 on Thursday morning.
"The book was a good mix of real money guys and hedge funds. Most people own the outstanding bonds as they're large and liquid," he said.
"Ultimately everyone is comfortable that this will pay cash throughout."
Play has guaranteed that it will pay the first coupon due in February with cash. It is expected that restricted payment clauses in the outstanding bonds will fall away by that time anyway, allowing the company to freely upstream cash.
The restricted payment basket falls away at 3.75x leverage, which the company is expected to achieve when its June results are published.
Joint physical bookrunners on the deal were JP Morgan (B&D) and Bank of America Merrill Lynch, and joint bookrunners Citigroup and Credit Suisse. (Reporting by Robert Smith, editing by Helene Durand and Sudip Roy.)