Broadband operator ONO closed a Eu3.4 billion ($4.6 billion) bond and bank refinancing against the back drop of Spain’s economic woes and uncertainty in European debt markets. The borrower and its syndicate of bank lenders were both willing to make sacrifices to create a more sustainable amortisation profile. In the process they may have created a template for other infrastructure sponsors to assemble bank/bond refinancings more easily.

ONO started operations in 1998, achieved positive Ebitda in 2002, and now reaches over 17 million Spanish homes. Its shareholders include Providence Equity Partners, CCMP Capital, Thomas H Lee Partners (all 15% each), Quadrangle Capital Partners (9%), GE (8.8%), Multitel (6.3%), Quebec’s La Caisse (6.6%), Val Telecommunicaciones (5.4%), Ontario Teachers (4.7%), Santander (4.4%), SODINTELICO (4.3%), Northwestern Mutual (2.3%) Bregal Co-Invest (1.4%) and others (1.8%).

ONO’s major acquisitions include Retecal in 2004, which gave it access to the core market of Castilla Leon, and its 2005 purchase of Auna, which gave it access to Madrid, Barcelona and Andalusia, amongst other regions. ONO, the operational brand of borrower Cableuropa, benefited from generous credit market conditions in the middle of the last decade. Its network cost Eu8 billion to build out, with much of that funding coming from bank lenders.

By 2010, however, ONO had Eu3.6 billion in debt coming due in the near term. After 2008 the Spanish economy contracted sharply, and unemployment increased to 25%. According to Pedro Mateu, director of corporate finance and investor relations at ONO, the operator embarked on a drastic restructuring of its business. “We redefined our commercial strategy with increased focus on high quality customers and product superiority and implemented a turnaround plan that led to significant cost savings and improved efficiencies throughout the entire organisation. The results were positive.”

ONO took the most significant steps towards the financing that closed in May 2012 when it sat down with its lending group in April 2010. The amendment and extension of its existing credit facilities recognised that banks were anxious to lower their exposure to the borrower, not so much out of alarm at ONO’s performance as a general desire to shrink the size of their loan book.

One of the amendments included the ability of the company to refinance the bank debt with bond debt ranking pari passu, but the three-year extension confronted the borrower with a 2013 maturity wall. ONO, says Mateu, did not want to replace all of its bank debt with high-yield bond debt, in part because of the increased interest expense this would entail.

But it did want to reduce that bank debt to a manageable level. From 2010, it started the process of closing bite-sized opportunistic bond issues. The refinancings used identical documentation, though they were all discrete transactions. Outweighing the increased transaction costs from these separate issues was the lower pricing on the smaller issues. Mopping up enough high-yield liquidity to retire a majority of the bank debt at once would have been expensive.

In October 2010, ONO issued Eu700 million in 8.875% notes due 2018, and refinanced its Eu461 million in subordinated bonds due 2014 with the same amount of bonds due 2019. In July 2011 it issued another Eu300 million in bonds with the same coupon and maturity as the October 2010 issue. In the face of continued Eurozone weakness, in January 2012, it issued $1 billion in dollar debt, again with a 2018 maturity, up from a planned $400 million.

The high-yield issues had taken the banks’ exposure down to about Eu1.7 billion. In May it signed a refinancing of its bank debt with Bank of America Merrill Lynch, Bankia, BBVA, BNP Paribas, Crédit Agricole, Deutsche, ICO, ING, JP Morgan, Santander, SG and Unicaja.

The lending group is a diverse mix of US, French, Spanish and northern European banks, as well as ICO, and two of the stronger cajas – Bankia and Unicaja – which provide the borrower with transaction banking services. Morgan Stanley, Goldman Sachs and Credit Suisse had worked on the 2010 vintage bond issues, but did not participate in the bank debt, and a small number of existing bank lenders did not get credit approval to participate in the new package.

The debt breaks down into a five-year Eu890.7 million amortising term loan A priced at 400bp over Euribor, a Eu100m five-year revolving credit facility, a Eu185 million 5.75-year bullet term loan B priced at 525bp and a Eu224.3 million bridge loan. In June 2012, ONO closed a final Eu224 million in bonds, on the same terms as the earlier high-yield issues, to pay down the bridge.

The issuer for the high-yield bonds, Nara Cable Funding, participated in the financing with two 6.5-year bullet loans of Eu1 billion and $1 billion. Nara must be a lender alongside the banks because under Spanish law, lenders must share a pledge of shares under a single financing contract. The financing includes requirements that banks be paid down further if ONO issues any more debt, though it does not have any immediate capital expenditure requirements.

With the completion of the financing, ONO has no relevant debt maturities until 2017. It also persuaded banks to accept a voting structure that gives bond and bank lenders equal rights, weighted simply according to their dollar commitment. ONO made equal treatment a condition of banks being paid down, an arrangement that is now probably market standard. 

Cableuropa SAU
Status
Closed June 2012
Size
Eu3.4 billion
Description
Bank and bond refinancing of Spanish broadband telecoms operator
Sponsors
Providence Equity Partners, CCMP Capital, Thomas
H Lee Partners, Quadrangle Capital Partners, GE,
Multitel, La Caisse, Val Telecommunicaciones, Ontario Teachers, Santander, SODINTELICO, Northwestern Mutual, Bregal Co-Invest.
Debt
Eu1.2 billion in high-yield bonds, $1 billion in high-yield bonds, Eu1.4 billion in bank debt
Arrangers
Bank of America Merrill Lynch, Bankia, BBVA, BNP Paribas, Crédit Agricole, Deutsche, ICO, ING, JP Morgan, Santander, SG and Unicaja
Financial adviser
Deutsche Bank
Borrower legal counsel
Clifford Chance
Lender legal counsel
Allen & Overy (banks) Cravath Swaine & Moore (bonds)