Auna: Dressed for the ball

The Eu4.5 billion refinancing for telecoms operator Auna went a long way towards propping up Spanish deal volumes in the first half of 2004. The deal is also symptomatic of the general recovery in lender sentiment towards telecoms operators, one that Auna was able to harness handsomely.

Auna was the largest syndicated loan in Spain in 2004, and confirmed the borrower as a strong, fully-funded and standalone operator. It also positions Auna as a potential initial public offering (IPO) candidate, or even a leveraged buyout target. Indeed, for the last several months a number of private equity houses have been eyeing all or part of Auna.

Auna is a telecoms group that encompasses a mobile operator ? Amena ? as well as a fixed-line and nascent cable television operation. It operates in both the wireless and fixed-line markets as an alternative to Telefonica, the former incumbent PTT.

The core of Auna is Amena, which was founded in 1998, and which closed a Eu2.4 billion financing in August 2001. That deal was a straightforward non-recourse deal, led by Barclays, Santander Centro Hispano (SCH), Deutsche, IntesaBCI and SG. The leads also provided Eu700 million, with a further vendor tranche of Eu600 million coming from Ericsson and Siemens.

The 2001 financing closed in the face of a downturn in sentiment towards telecoms and worries about the impact of the introduction of 3G technology on operator returns. One key reassurance came from the group's shareholders ? Endesa, Telecom Italia Mobile (TIM) and Union Fenosa.

But the lenders called upon the three to guarantee the Eu1.2 billion debt of the fixed-line operations of Auna, which faced much more of a harsh operating environment. TIM decided to sell its stake to SCH, which subsequently built up a 23.49% stake at the end of 2001 and start of 2002.

From that the time the sponsors tried to put in place a deal that would remove or dilute the guarantees from sponsors, as well as some of the restrictive project finance covenants. But market sentiment precluded any new deal, a state of affairs that continued through 2003. The three shareholdings now stand at SCH (27%), Endesa (32.6%) and Union Fenosa (19%).

One very helpful development was a decision from the Spanish telecoms regulator, the Comision del Mercado de las Telecomunicaciones (CMT) that fixed-line operators would not have to offer comprehensive service in unprofitable areas. This reduced the potential capex and overhead burden on Auna substantially. Auna is now the second placed mobile operator in Spain, behind Telefonica but ahead of Vodafone. The company now has roughly 10 million subscribers and made a Eu90 million profit for the first nine months of 2004, as against a Eu29 million loss for the same period in 2003.

The new financing, on which the leads began work in earnest at the start of 2004, was designed to repay both the Amena and fixed-line facilities, and needed to accommodate the ambitions of all of the relationship banks of the borrowers and sponsors. The result was a potentially unwieldy mandated lead arranger group of 12 banks, none of which really held co-ordinator status.

The leads split into three groups, for structuring, due diligence and syndication. Structuring featured Caja Madrid, Santander, BNP Paribas and SG, due diligence comprised Citigroup, Calyon, BBVA and ACF, while the syndication banks were ABN Amro, La Caixa, Banesto and RBS.

The final package consisted of a Eu3.5 billion term loan with a maturity of 6.5 years, and a Eu1 billion working capital facility with a seven-year tenor. The deal does amortize, but the repayments are skewed heavily towards the end of the loan's life. While the June and December payments this year are Eu80.5 million, in these months in 2009 Auna will have to repay Eu550 million.

The covenant package falls somewhere between the project deal for Amena and the secured but corporate-backed loans for Auna. While there are some restrictions on further indebtedness and the disposal of assets, the sponsors no longer have to provide a pledge of shares, and the reporting requirements by the borrower to the lenders are much less onerous.

Moreover, the borrower does have to stay within set financial ratios, but debt to ebitda has a much greater effect upon pricing than on distributions. The deal is priced at 150bp over Euribor initially, and then prices quarterly according to the net debt-Ebitda ratio: 125bp for 3-3.5x; 105bp for 2.5-3x; 80bp for 2-2.5x; and less than 2x is 60bp.

Auna now has a simple and understandable capital structure, one that could be communicated quickly to potential equity investors during an IPO. The lenders also anticipated a possible dismemberment of Auna, and have included language in the documentation to allow for such a possibility, subject to consents.

The second possibility is readily imaginable ? Apax Partners, Blackstone Group, Carlyle Group, CVC Capital Partners and Providence Equity Partners are understood to be examining an Eu11 billion bid for Auna. But the bid has not been formally announced, since in the interim Auna has announced a Eu2.4 billion bid for rival cable operator ONO. ONO, which raised Eu800 million from project lenders at the same time as the first Amena financing, has rejected the bid, but Auna is looking to line up supporting lenders.

In this regard, a top-heavy arranger group will have helped ? despite the huge size of the deal, all of the leads have manageable exposures, although interest in syndication was brisk, with around 25 banks committing to the deal. Financially independent Auna could well be calling them again.

Auna
Status: Closed 22 June 2004
Size: Eu4.5 billion
Location: Spain
Description: refinancing of project and secured facilities for Spain's second largest fixed-line and wireless operator
Sponsors: Endesa, Union Fenosa, Santander
Debt: Eu3.5 billion 6.5-year term loan, Eu1 billion 7-year revolver
Arrangers: ABN Amro, ACF, BBVA, Banesto, SCH, BNP Paribas, La Caixa, Caja Madrid, Citigroup, Calyon, SG and RBS
Legal counsel to the lenders: Allen & Overy and Uria y Menendez
Legal counsel to the borrower: Clifford Chance
Technical adviser: ADL