Swiss telecom operator Salt Mobile SA has announced the postponement of its CHF2.09 billion-equivalent four-part bond offering, citing market conditions.
The announcement followed a fall in its secondary bonds June 8, which fell back from their call price, raising concerns that the borrower's new-issue process was under pressure. Books had been due to close June 7 on a four-part offering, and no official update was available by early June 8. It is understood that banks were working on getting the new-issue financing out and seeking a compromise with the issuer and investors.
The floating-rate notes are understood to have been popular, but accounts questioned the depth of demand for the dollar tranche that was Salt's debut offering in the currency, and pricing looks to have gone wider on the fixed-rate tranches than the company was willing to accept.
The outstanding 2027s, which were not due to be refinanced but are the pricing point for the new euro eight-year fixed notes, yielded 4.95% early June 8, versus 4.80% when guidance on the new notes came out in the 4.75% area. This indicates that pricing was likely widening on that tranche, and it seems there was sufficient price sensitivity for the issuer, especially as price whispers had been 4.5%.
The secondary market was also pricing in the chance that the financing might not emerge. The borrower's 2023 notes were down a point at 101.5, with the call price at 102.438, but were still only down to levels seen before the new financing launched, so there has not been any capitulation.
Investor feedback highlighted that the question being asked most is: Why is the company issuing such an opportunistic deal when it is clear that it will increase interest costs, it will pay CHF39 million in redemption premiums to refinance the bonds and is terming out the debt by just three years?
Most accounts say the rationale here is the firm's objective to align its covenant package with the far looser terms on its 2027 notes, and that the company is unlikely to pay up just to have increased flexibility and not use it. That said, the new-issue market is seeing widening yields, and allied with volatile markets and the debt extension, this meant it could have been economically prudent for Salt to refinance as early as possible.
Certainly the looser docs have been a key talking point, and the feeling among investors is that the 2027 notes have been underwater since being issued late last year — partly because they are the longest-dated, but also because the covenant package is looser, and the company already showed that it is not always bondholder-friendly when it got through a majority consent to allow a CHF500 million dividend with proceeds from the new bonds.
That said, there appears to have been a deal there, just not at the acceptable price — as has been the case with the three transactions pulled last month. Indeed, accounts highlighted why Salt is a fundamentally attractive company as it is highly cash-generative, operates in a defensive sector and has a history of deleveraging.
Owned by French businessman Xavier Neil's NJJ Capital SAS, Salt is one of the three major nationwide mobile network operators in Switzerland.
