ONO’s multi-stage refinancing programme has
established a new refinancing model for European companies.
Spanish cable company ONO issued
$310 million high-yield notes due 2018, in conjunction with
a complete refinancing of its existing senior bank
The deal completed in mid-June and led to the subsequent
upgrade of ONO, despite a deteriorating market caused by
Spanish sovereign debt concerns. Lawyers on the deal expect to
see a lot more deals using the ONO template in the future.
Clifford Chance’s high yield partner, John
Connolly said companies facing
a wall of refinancing could use ONO’s
technique to attack their financing needs in smaller bites
rather than waiting and refinance a large amount of debt in one
"ONO was strategic, issuing bonds in instalments at
opportune times in the market," he said. "Unless markets
improve dramatically, refinancing in one go is going to be very
The ONO template
In order to implement the refinancing, ONO first had
to amend its existing senior bank facility to allow new special
purpose vehicle (SPV) tranches, which would be funded with the
proceeds of a high yield bond issued by an SPV so long as the
proceeds were used to repay existing bank debt.
Once this amendment was approved, ONO was free to issue
senior secured high yield bonds that ranked pari passu
with its senior bank debt and shared security equally with its
Over the course of 20 months, ONO completed five high yield
bond offerings, refinancing almost two-thirds of its existing
bank debt as well as all of its existing subordinated high
yield bonds. ONO’s revenue was entirely
euro-denominated. But the bonds tapped the deep liquidity of
the US dollar market.
Upon completion of the last bond offering, ONO was able to
enter into a new senior bank facility which refinanced all
remaining bank debt.
The new senior bank facility included €1,076 million in
bank tranches, a €100 million undrawn revolving credit
facility and approximately €1,981 million in SPV tranches
relating to bond offerings executed by ONO since October
What to watch out for
However, deal counsel warned firms looking to
replicate this technique need think through in advance all that
they are required to ask for in order to get the bond done the
Michael Dakin, another high yield partner with Clifford
Chance said that once the mechanics were in place through the
amendments, it was not possible to ask for other amendments to
provisions if something in the structure wasn’t
acceptable to the bond market.
One particularly controversial part of the structuring
concerned how much voting rights the SPV tranches would have as
compared to the existing bank tranches in terms of enforcement
Initially, the bank lenders were opposed to allowing dollar-for-dollar voting and imposed a
ceiling on voting rights for any SPV tranches at 30% of the
total votes. Although the provisions created no marketing
issues for the early bond deals, as the total value of the SPV
tranches approached 30%, ONO had to seek a further amendment to
increase the voting limit to 40%.
When the new senior credit facility was negotiated, ONO was
able to remove the voting limit entirely, creating one of the
first dollar-for-dollar voting mechanisms in the market.
Euro exit safeguards
Another complication in the refinancing arose when
the documentation for the bank facility had to be converted
from Spanish law into English law because of escalating
This meant ensuring that the English law provisions in the
facility and inter-creditor agreement were functionally
equivalent to the existing Spanish documentation. Connolly
explained the structure was replicated so all the existing
bonds would transfer into the new facility. "But we had to make
sure that could all be done without a problem under the
indentures," he said.
Who can use this template?
In refinancing, ONO aimed to position itself to be able to act
fast and take advantage of windows of opportunity when the
market was open. The fact that the company was already a
well-known high yield issuer and had quarterly reporting helped
in this respect.
Quarterly reports enabled ONO to issue at any moment, since
its financial information was always current and its disclosure
was updated. "In two weeks we could have had an offering
memorandum ready and they could be on the road so they could
really time it to their advantage," said Connolly.
Clifford Chance acted as Spanish, US and UK counsel for ONO.
Cravath, Uría Menéndez and Linklaters acted for
the managers and bank lenders. White & Case acted for the