BC Partners has issued new PIK notes for Swedish cable television group Com Hem, raising €250 million and allowing the firm to pay a dividend to its investors, according to sources with knowledge of the process. BC declined to comment.
The coupon on the new notes is 12.4 percent, stepping up by 100 basis points after five years. Sources said the seven year notes had more favourable non-call protection than the previous PIKs. Deutsche Bank and Morgan Stanley were bookrunners for the new notes, which are reportedly rated at CCC+/Caa2.
The deal allowed BC to repay the €155 million of PIK notes issued by a group of six underwriting banks – Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs, Nordea, Morgan Stanley and UBS – as part of the €1.9 billion buyout of Com Hem last year.
The original PIKs were purchased by BC at a discount after the banking consortium struggled to syndicate that tranche of the debt.
Sources indicate the capital structure now in place at Com Hem was that desired by BC when it began the acquisition process last year.
The deal is also symptomatic of a growing trend. Although the situation has improved this year, financing – particularly senior debt issued by banks – has been hard to source in Europe. As a result, some sponsors have pressed ahead with buyouts using larger-than-normal equity components, or more expensive tranches of debt. As debt market conditions have improved, those sponsors have looked to refinance the debt at more attractive terms.
Sources indicated the improved market conditions had facilitated this deal, in line with that trend.
More specific to this deal, changes in Swedish tax law mean that debt held by an affiliate (the Com Hem holdco), is no longer tax deductible. BC Partners’ fund, therefore, becomes a less appropriate holder of PIK debt.
Despite the larger PIK component, Com Hem has still been delevered compared to debt levels at acquisition. Leverage then was 6.1x earnings before interest, tax, depreciation and amortisation, sources said; following the new PIK issue, it stands at 5.7x.
Although the new PIK component is larger than the previous one, earnings at the company have risen steadily since acquisition, allowing the company to delever by approximately one turn. The new notes then increased leverage slightly. Importantly, leverage now still remains below that at the time of the buyout last year.