Mezzanine buyers set for large slice of cable debt after bond issue is pulled

Belgian and Luxembourg cable business Coditel is set to complete senior and mezzanine funding to finance its leveraged buy-out imminently, according to market sources. The assets were spun off in May from French-based cable operator Numericable to a consortium including Apax Partners. A €260 million seven-year secured bond issue was initially meant to provide the debt financing for the €396 million buy-out, but the deal was pulled as bond markets headed south.

Mezzanine is set to provide just over €100 million of the financing, with senior loans providing the remainder. “It is about to be signed,” says a mezzanine executive at a French-based private equity firm. “With the high yield bond market silent, the capital structure has been completely reshuffled with senior debt and mezzanine. The mezzanine is a large piece of slightly over €100 million.”

Mezzanine is junior debt that typically provides a combination of cash interest, capitalised interest and equity warrants. There had been a previous attempt to reshape the Coditel financing. This would have involved a €200 million secured bond together with €60 million of mezzanine.

Mezzanine providers are showing an increasing willingness to fill funding gaps as high yield bond investors have retreated. Other deals have included €394 million of mezzanine funding to help finance the buy-out of Swedish alarm maker, Securitas

“We see an improvement in mezzanine demand versus high yield in terms of conditions and the pricing,” says a director at a large, specialist mezzanine provider in London. “Typically we see mezzanine deals price to give an overall return of around 15%.”

However, mezzanine providers are in a strong position to ask for concessions. These can include the provision of direct equity.

“The new-vintage mezzanine deals have been allowed to put a bit of equity in,” notes one mezzanine provider. “Rather than the mezzanine investors having the equity upside in warrants, the private equity investor sells part of the equity investment up front.”

It is not known whether the Securitas or Coditel deals have provided this type of concession.