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Charter weighs up options on Time Warner Cable financing

By Lisa Lee, Michelle Sierra and Natalie Harrison

NEW YORK, Aug 13 (TRPLC/IFR) - Charter Communications is expected to revisit the leveraged loan market as soon as September, and may also try to sell a high-yield bond, to raise the remaining US$3.9bn it needs to buy Time Warner cable assets.

Charter more than halved the size of its senior secured institutional facility to US$3.5bn from US$7.4bn last Friday, opted for a seven-year term loan rather than two term loans with different maturities and increased pricing.

One leveraged finance banker close to the situation said the decision to cut the size of the deal was due to a combination of softer markets, and the issuer's sensitivity around higher financing costs following a pick-up in volatility shortly after the deal launched to investors.

A repricing in the high-yield market has now fully filtered through to the loan market, the banker said.

"The company doesn't really need the money for six months so it can be patient," the banker said.

The cable giant is now considering its options to finance the rest of its acquisition of Time Warner Cable (TWC) subscribers, which rival Comcast is selling to help get regulatory approval for its planned US$45bn purchase of TWC .

Those choices include revisiting the loan market or raising cash from a unsecured high-yield bond, most likely in the fall, the banker said.

The hope is that the smaller deal size will make it more manageable to term out risk.

"Banks like to underwrite deals like Charter because everyone wants to own cable," said another leveraged finance banker.

"Investors know the name, and it's not a question of evaluating Charter risk."

Goldman Sachs is lead left on the transaction, joined by other bookrunners Bank of America Merrill Lynch, Credit Suisse and Deutsche Bank.


Still, the deal's struggle is a worrying sign as there are US$69bn of leveraged loans in the pipeline, according to Thomson Reuters LPC, and investors are certain to continue to make the most of the volatility by demanding higher prices on deals.

Albertsons, for example, sweetened pricing on US$4.6bn of institutional term loans backing its acquisition of supermarket operator Safeway earlier this month.

"Both are good deals," said a loan investor, referring to Albertsons and Charter. "Investors just expect to be paid more."

The first banker said issuers would stay nimble, looking to tap either the loan or the bond market depending on what offers the best value in the weeks ahead.

"The loan market has very strong technicals, driven by the CLO bid, but there is also a lot of supply. That could mean the bond market could find equilibrium faster than loans," said the banker. "In this market, it's all about finding a level."

Charter and Albertsons are not the only companies that are having to adjust to different pricing levels.

On the loan side, a number of opportunistic deals have recently been pulled in response to volatility in the equity and high-yield markets. They include a US$380m financing backing a dividend recapitalization for packager HCP Global Limited, and repricing attempts for education technology company Blackboard and precision engineering firm SeaStar Solutions.

Well services company Expro also reduced its deal to US$1.45bn, removed a delayed draw tranche and upped pricing.

Bond deals for the buyout of Safeway and another for Jupiter Resources - backing Apollo's acquisition of Encana's Bighorn assets - have been pushed back to September.

And another acquisition deal, for NCSG Crane & Heavy Haul Corp, not only priced a week later than expected but also came 200bp wide of whispers.

One private equity source estimated capital costs had risen by at least 100bp over the past month - but said it really boils down to individual credits.

Factors taken into account include the size of the deal, the length of commitment, ratings, and whether the credit is already known in the market, he said.


The second banker stressed fairly aggressive deals are still getting done with structural changes that benefit investors such as extended call protections and Most Favored Nation clauses (MFN).

The banker pointed to a loan and bond deal from BWAY which priced last week and partly financed a dividend to shareholders.

"BWAY had very aggressive terms, but came unscathed. Will we be more careful? Absolutely. Does it mean we offer 101 protection for a year now? Probably. Add MFNs? Most likely," said the banker.

"Banks have to be careful and underwriters are under pressure but I'm not aware of anything disastrous that has been underwritten."

Some commitments, for the buyout of Acosta by Carlyle, for example, was only signed in the past month when markets were already choppy - showing banks are holding their nerve.

The hope is that investors will now start to see value. The yield-to-worst on the high-yield index neared 6% last week, but has since retraced to 5.59%, according to the Barclays index.

From a borrower's perspective, funding costs remain cheap.

"When you see that the yield on a bond is lower than the leverage on a deal you know that the market is frothy," said another private equity source.

"The market was well overdue for a correction." (Reporting by Natalie Harrison, IFR, and Lisa Lee and Michelle Sierra, TRLPC; Editing by Jonathan Methven)