eKabel forced to cut zero

  • 10 Aug 2000
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German cable credit eKabel on Monday pulled back from selling a 10 year zero coupon bond as part of its debut offering, as weak markets pushed out pricing on its issue to levels previously unseen on a European high yield deal.

The company, which tapped the market as part of its acquisition of cable assets from Deutsche Telekom, went ahead with two interest bearing tranches of Eu225m and $175m, lead managed by Merrill Lynch.

The tranches offered investors a 14.5% coupon, but were priced at a discount to yield 14.75%. Price talk for the coupon had been 14%-14.25%.

The spread talk for the dollar denominated zero coupon notes was 200bp-225bp wider than the cash pay tranches, but the issuer balked at paying a yield of 16.75%-17%.

"The company had a gun pointed at its head," said a banker at one co-manager.

Cancellation of the zero coupon issue meant eKabel missed its target of Eu465m equivalent by Eu80m. And while the company sold Eu225m of interest bearing paper, it was looking for more from the euro tranche.

The transaction came at the end of a period of strong supply in the European sector, and, like last week's deals, highlighted the difficulties of selling large amounts of high yield paper into unreceptive markets.

The pricing was particularly disappointing for eKabel, as the issue was priced wider than the paper from Callahan Nordrhein Westfalen (CNW) - which was the first company to acquire cable assets from DT - even though CNW is regarded as a weaker credit.

Unlike CNW, the company has a major cable operator - NTL - as part owner alongside Deutsche Telekom. According to one banker, eKabel also has a more conservative capital structure.

"In better markets, eKabel could have been priced 25bp-50bp through CNW," said the banker.

One of the deal's co-managers said eKabel might consider returning to the bond markets to refinance the remnant of the bridge loan that a larger bond issue would have removed.

  • 10 Aug 2000

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