Supply from the German cable sector continues to loom over the high yield market, with Merrill Lynch due to start premarketing a $555m equivalent bond transaction from E-Kabel LLC next week. E-Kabel LLC is raising the financing after its acquisition of a majority stake in Deutsche Telekom's cable TV network in the Hesse region. The deal follows a similar financing from Callahan Nordrhein Westphalen (CNW), which issued $775m equivalent of bonds via Merrill Lynch and Salomon Smith Barney at the end of June. Like the CNW deal, which was priced at the wide end of the indicated price range, investors said that E-Kabel will not be an easy credit to sell. The fact that investors were aware of E-Kabel's plans to tap the market made the execution of the CNW transaction harder, but the structure of the German cable market was another factor that helped to dampen demand. Those same considerations will play a part in determining the extent of appetite for the deal from E-Kabel, investors said. The company, which is owned by Brigadoon - the venture capital business of UK cable operator NTL - along with UK private equity group, Klesch, is the only firm to date outside CNW to have acquired cable assets from Deutsche Telekom. Deutsche Telekom is selling stakes in its cable operations in nine regions in total. CNW's lack of direct relationships with customers was of particular concern for some investors, and similar reservations are likely to affect the deal from E-Kabel and other transactions that follow. "It is not easy to understand CNW from a relationship perspective and partly for that reason we did not play in the deal," said a high yield investor in London. "The German cable market is different from the UK market, for instance, where companies like NTL have relationships with all of their customers. In Germany, you have other cable operators standing in between, so it is hard to see CNW or E-Kabel as classic cable stories." "We did not play in the CNW deal because we were uncertain about how economically viable it will be to develop a cable play in Germany," added a Paris based high yield investor. "We were uncertain because of the question of relationships and also because it is a long time to market for these companies. Deutsche Telekom's cable networks are relatively old and will take years to upgrade. "As a result, we were not especially positive about the transaction, although it would be wrong to say that we were wholly negative." Along with $150m of zero coupon notes, which were priced to yield 16%, CNW issued $400m and Eu225m of cash pay notes, with a 14% coupon. Despite being priced at the wide end of the range, some bankers said the deal nonetheless reflected well on the issuer. "It was a large transaction and the cable sector has not been performing well, but the company got the deal away at a reasonable yield," said a co-manager of the transaction. Three bond issues from industrial issuers are roadshowing at the same time as the E-Kabel transaction, which Merrill Lynch is looking to price by the end of the month. Ciba Specialty Chemicals' performance polymers division, which has been renamed Vantico, is approaching investors for Eu250m, following finalisation of the company's buy-out by Morgan Grenfell Private Equity. CSFB is lead managing the transaction. In addition, RJ Tower Corp, which is a US based manufacturer of automotive parts, is in the market, for Eu200m of 10 year bonds, via Bank of America and Chase. And in the sterling market, UK power station Drax is seeking £400m equivalent of senior secured bonds via Goldman Sachs, along with £250m equivalent of high yield bonds via Goldman Sachs and DLJ. The financing, which will be divided between dollar and sterling tranches in both the senior and subordinated deals, is partly refinancing last year's acquisition of Drax by US energy company, AES Corp.
July 07, 2000
