A1 Towers Holding showed that investors are willing to deploy cash even for tricky transactions in the euro market, as long as they offer what they see as the right price.
The deal's debut nature and the small-sized tower infrastructure company's high leverage meant the transaction was not the easiest to get over the line, especially in a market dominated by an extremely selective investor base.
Still, the Austrian borrower's no-grow €500m five-year bond issue was covered more than five times on Thursday, gaining final books exceeding €2.5bn. While the subscription rate is impressive, demand came with a high price tag as the notes landed closer to its lower-rated peers such as crossover credit TDC Net (BB, Fitch) than similarly rated names such as American Tower (Baa3/BBB–/BBB+). A1 Towers is rated Baa2/BBB– (Moody's/Fitch).
"We thought American Tower Corp's bonds should trade tighter than A1 given [the US corporate's] bigger business, but [the pricing] was also not the widest among the comps, as TDC's 2028s were bid at 225bp when investors were trying to position as wide as possible," said a lead.
The July 2028s were launched at mid-swaps plus 190bp via global coordinators Citigroup, Santander and UniCredit. They were also joint bookrunners with BBVA, Erste Group and IMI-Intesa Sanpaolo. Initial price thoughts were 220bp area.
Leads looked at a wide range of comparables that included bonds from parent America Movil (Baa1/A–/A–) to sector names such as American Tower and Cellnex Telecom (BB+/BBB–, S&P/Fitch). Secondary prices of those companies' notes of a similar duration were bid in the range of 64bp to 160bp, according to a list circulated by the leads.
"It was difficult to pinpoint what the right valuation is with such wide range of pricing levels for a new entrant and a small one," said a second lead. A1 Towers is relatively small compared with its rated peers in the tower sector globally, according to Moody's.
"Investors also wanted to understand the big picture on the company's deleveraging plan," the second banker said.
Both Moody's and Fitch expect A1 Towers to maintain high initial leverage this year. Fitch, for example, forecast the company's Ebitda net leverage at around 7.6x, which is above the downgrade leverage sensitivity of 7x. Rating agencies, however, said there is good deleveraging capacity supported by the company's commitment to not pay dividends for the next couple of years or so. Fitch expects leverage to fall below 7x, in line with the rating, over the next two years.
"Higher leverage is obviously a risk, but that being said, the deal shows that as long as you can tell the right story there is demand," said the first banker, who added that tower companies generally operate with high leverage given their asset-heavy business.
Tower business spin-off
The deal also overcame uncertainties around a spin-off that is set to be completed in September. A1 Towers is a spin-off from Telekom Austria, which is expected to transfer its equity stake in its tower portfolio business A1 Towers to EuroTeleSites.
"It's a brilliant outcome from a company that is yet to go through the spin-off," the first banker said.
A1 Towers' shareholder composition will mirror that of Telekom Austria, with Mexican blue chip America Movil set to be the controlling shareholder with a 51% stake in EuroTeleSites. Austrian state-owned company Oesterreichische Beteiligungs will hold about a further 28%, while the remaining shares are to be listed on the Vienna stock exchange.
That ownership structure is shielded by a five-year lock-up period during which the two main shareholders will not be able to sell any shares, according to Moody's, which explains the reason for A1 Towers' decision to switch to printing five-year notes instead of sticking to its initial plan of tapping a long seven-year tenor.
The change in tenor choice came as the company held an extra day of investor calls on Wednesday. It explained in a roadshow presentation that the decision was taken to respond to investor feedback and enable America Movil to commit to own A1 Towers for the whole life of the bond issue, as well as to optimise the pricing outcome to a lower yield.
The new notes will be unconditionally and irrevocably guaranteed initially by Telekom Austria, though that guarantee will be replaced by EuroTeleSites after the spin-off.
Following the spin-off effective date, net proceeds will be predominantly used to repay to Telekom Finanz management certain debt incurred by the issuer as a result of the spin-off.