Israeli telecoms company B Communications has issued the
first internationally marketed high-yield bond to be listed
on the Tel Aviv stock exchange. The bonds included a unique
covenant package that could open the high-yield market to new
companies throughout Europe.
The $800 million bond was issued by Nasdaq-listed B
Communications, which owns a controlling stake in Bezeq,
Israel’s largest telecommunications provider.
Standard & Poor’s assigned the bond a
rating of ilA.
The bellwether deal sees a significant shareholder of a
public company accessing the international high-yield market
based on the credit of its underlying share ownership. As
western banks withdraw lending lines in the face of increasing
regulation, this deal is set to have wide-ranging
"B Communications’ debut issuance highlights
how companies around the world are working with regulators to
create structures that allow international investors to tap the
high-yield market, bringing new money to the jurisdiction and
diversifying the sources of long term debt capital," said White
& Case partner Rob Mathews, the firm’s
regional section head of EMEA capital markets.
The deal is the first direct Israeli issuance of a high
yield bond listed on the Tel Aviv Stock Exchange (TASE). Until
now, the up to 25% withholding tax on interest income for
non-Israeli bondholders had essentially prevented Israeli
companies from accessing the international high-yield markets
directly out of an Israeli issuer.
In a market-first, the bond was listed on the TASE enabling
it to benefit from no withholding tax on interest income for
The deal at a glance
- Israeli telecoms company B Communications has
issued the first internationally marketed high-yield bond to
be listed on the Tel Aviv stock exchange;
- It is the first to list on the exchange that
benefits from no withholding tax on interest income for
- The bonds developed a unique lock-box structure
that could open the high-yield market to companies throughout
A tailor-made solution
The bonds’ covenant package contained a
tailored lock-box covenant in lieu of a traditional restricted
payments covenant to account for the company’s
primary asset and cash flow structure.
B Communications’ primary asset is its
controlling interest (approximately 30.9%) in publically traded
Bezeq, the incumbent Israeli telecommunications provider.
Revenue is derived primarily from dividends Bezeq pays on a
The covenant package provides that a portion of the
dividends would be put into a secured lock-box account that
would service among other things the issuer's debt obligations,
both the senior secured bonds and, in certain circumstances,
its unsecured debt.
The remainder of the cash was unrestricted, meaning that
subject to certain conditions the company can use it more
broadly – including to pay dividends.
JP Morgan acted as sole global coordinator on the
transaction with JP Morgan, Citi, HSBC and Discount Bank acting
White & Case worked with the company’s long
standing Israeli counsel Fischer Behar Chen Well Orion & Co
and with Carter Ledyard & Milburn. The initial purchasers
were advised by Latham & Watkins and Israeli counsel Yigal
Arnon & Co. Hogan Lovells advised the trustee and security
agent Mishmeret Trust Company.
Key deal documentation
Standard & Poor’s rating report