Swiss cable television company Cablecom broke with conventional refinancing wisdom with its most recent deal, replacing all its debt with sub-investment grade capital markets notes containing no financial maintenance covenants.
The SFr1.425 billion ($1.2 billion) deal is the first transaction in Europe to completely refinance fully performing bank debt (including the working capital portion) with a series of sub-investment grade capital markets instruments containing no financial maintenance covenants or other undertakings typical to bank indebtedness.
Cablecom issued three series of floating rate senior secured notes: a SFr390 million issue,two euro issues totalling €575 million ($745.4 million) and a SFr150 million senior revolving facility.
The capital markets notes used a covenant-light approach, tapping the high-yield market but using a looser covenant package than usual. But the interesting thing about the deal is the extension of the covenant-light approach to the revolving credit facility.
"The last time Cablecom refinanced, in April 2004, it got reasonable terms but, being only six months after a restructuring, there were still restrictions on indebtedness and a capital expenditure covenant," says Christopher Hall, a partner at Latham & Watkins who advised Cablecom.
The company was able to negotiate the deal because of its excellent growth prospects, having substantially reduced its SFr4.2 billion debts. The new deal gives Cablecom greater flexibility than would have been available in the bank markets for principal amortization, debt incurrence and capital expenditures.
The application of a capital markets-style covenant package to bank debt is highly unusual but could prove popular among banks wishing to offer favourable terms to win business from a client with high growth prospects.
Latham & Watkins advised Cablecom on US law, with Bär & Karrer advising on Swiss law. Simpson Thacher & Bartlett advised arrangers Goldman Sachs, Deutsche Bank and CSFB on US law, with Homburger providing Swiss advice. Allen & Overy advised the trustee and Arthur Cox acted as listing agent.
Says Latham's Hall: "This was a complex deal to execute but resulted in an exciting market breakthrough. This transaction sets a precedent that we anticipate will be followed by many others."