5 Min Read
* Salt bondholders consent to covenant relaxation
* Sets stage for dividend recapitalisation
* Attempts to block deal frustrated
By Robert Smith
LONDON, March 9 (IFR) - Salt's bondholders have agreed to temporarily loosen covenants and allow the Swiss mobile operator to pay a chunky dividend to billionaire telecoms entrepreneur Xavier Niel.
On Wednesday afternoon Salt received the necessary "50% plus one" approval from both senior secured and unsecured bondholders, allowing it to launch an SFr686m-equivalent high-yield bond issue to help fund the SFr500m dividend.
The senior secured and unsecured debt raise will price on Thursday, via joint physical bookrunners Goldman Sachs and Credit Suisse.
While dividend recapitalisation deals - where a company loads up on debt to return cash to shareholders - are common in hot markets, Salt's proposal initially drew the ire of some investors because it required them to suspend crucial protections in their bonds.
Bondholders had until 4pm on Thursday to agree to the covenant changes, which some investors said was too soon after the deal's announcement the previous Friday to make a decision.
"The accusation that we're not giving people enough time to do the credit work is BS," said a banker on the deal, however.
"What we're not giving them time to do is get together and form a (blocking) group."
The consent solicitation was particularly hard to block on the senior secured notes, as three different bonds were voting as one class. This led some to believe they might have more success on the €182m 4.875% 2023 senior unsecured notes, although the banker said no single investor had a big enough holding to seriously form an effective group.
Several law firms canvassed unsecured bondholders to try to get a group off the ground nonetheless, according to several people familiar with the matter, but these efforts ultimately came to nothing.
One senior unsecured bondholder told IFR that the liability management exercise was "more or less impossible to block".
"We have a decent stake, but getting to 50% plus one seems highly unlikely," he said. "They're offering enough money and the free rider problem is too hard to get over."
Opposition was even harder to drum up because anchor investors had already negotiated higher fees prior to the deal's public announcement.
Consenting bondholders share a fixed fee pool, equivalent to a minimum of 1.5% and 2% fees on the senior secured and unsecured notes, respectively.
Large holders that banks wall-crossed on the deal were initially shown fees equivalent to 1%, according to a person close to the situation, but pushed for the higher fees in exchange for their support.
While several investors said the eventual fees were too high to turn down on principle, some expressed concerns that the deal set a precedent for high-yield bonds to become more like leveraged loans, where covenant waivers are more common.
"Do we really want to be the loan market, which says 'Thank you sir, may have I another?' every single time?" said one high-yield fund manager. "That's a market where they're used to having no upside, but high-yield is a fixed-rate market with call protection and, one would hope, covenant protection."
The banker said that in contrast to bond fund managers, loan investors "wouldn't even blink" at Salt's proposal.
"If this was a loan, we'd have paid the investors 10bp," he said. "Unfortunately for bond guys, that's your main competition. The bond market is running the risk of turning into only Double B corporates and credits too crappy to get financing in the loan market."
French telecoms entrepreneur Xavier Niel acquired Orange Switzerland through his NJJ Capital investment vehicle in 2015, and renamed it Salt.
The fund manager said that Salt was "already unpopular" with some bondholders, after it announced in September 2015 that it would begin offering investor conference calls only on an annual basis instead of quarterly.
Most bond investors see quarterly investor calls as a fundamental necessity for covering companies effectively, with very few issuers straying from this convention.
Since cancelling the calls outright initially, Salt has since reintroduced them on an ad hoc basis, hosting calls for some quarters but not others.
"This whole process has enlightened them on the value of engaging more with their investors," the banker said.
"They've always thought: 'If we deliver operationally, why should people care?' But communication builds up good will, and helps analysts understand the nuance of what's going on under the surface." (Reporting by Robert Smith)