* Salt bondholders consent to covenant relaxation
* Sets stage for dividend recapitalisation
* Attempts to block deal frustrated
By Robert Smith
LONDON, March 9 (IFR) - Salt's bondholders have agreed to
temporarily loosen covenants and allow the Swiss mobile operator
to pay a chunky dividend to billionaire telecoms entrepreneur
On Wednesday afternoon Salt received the necessary "50% plus
one" approval from both senior secured and unsecured
bondholders, allowing it to launch an SFr686m-equivalent
high-yield bond issue to help fund the SFr500m dividend.
The senior secured and unsecured debt raise will price on
Thursday, via joint physical bookrunners Goldman Sachs and
While dividend recapitalisation deals - where a company
loads up on debt to return cash to shareholders - are common in
hot markets, Salt's proposal initially drew the ire of some
investors because it required them to suspend crucial
protections in their bonds.
Bondholders had until 4pm on Thursday to agree to the
covenant changes, which some investors said was too soon after
the deal's announcement the previous Friday to make a decision.
"The accusation that we're not giving people enough time to
do the credit work is BS," said a banker on the deal, however.
"What we're not giving them time to do is get together and
form a (blocking) group."
The consent solicitation was particularly hard to block on
the senior secured notes, as three different bonds were voting
as one class. This led some to believe they might have more
success on the €182m 4.875% 2023 senior unsecured notes,
although the banker said no single investor had a big enough
holding to seriously form an effective group.
Several law firms canvassed unsecured bondholders to try to
get a group off the ground nonetheless, according to several
people familiar with the matter, but these efforts ultimately
came to nothing.
One senior unsecured bondholder told IFR that the liability
management exercise was "more or less impossible to block".
"We have a decent stake, but getting to 50% plus one seems
highly unlikely," he said. "They're offering enough money and
the free rider problem is too hard to get over."
Opposition was even harder to drum up because anchor
investors had already negotiated higher fees prior to the deal's
Consenting bondholders share a fixed fee pool, equivalent to
a minimum of 1.5% and 2% fees on the senior secured and
unsecured notes, respectively.
Large holders that banks wall-crossed on the deal were
initially shown fees equivalent to 1%, according to a person
close to the situation, but pushed for the higher fees in
exchange for their support.
GAME OF LOANS
While several investors said the eventual fees were too high
to turn down on principle, some expressed concerns that the deal
set a precedent for high-yield bonds to become more like
leveraged loans, where covenant waivers are more common.
"Do we really want to be the loan market, which says 'Thank
you sir, may have I another?' every single time?" said one
high-yield fund manager. "That's a market where they're used to
having no upside, but high-yield is a fixed-rate market with
call protection and, one would hope, covenant protection."
The banker said that in contrast to bond fund managers, loan
investors "wouldn't even blink" at Salt's proposal.
"If this was a loan, we'd have paid the investors 10bp," he
said. "Unfortunately for bond guys, that's your main
competition. The bond market is running the risk of turning into
only Double B corporates and credits too crappy to get financing
in the loan market."
French telecoms entrepreneur Xavier Niel acquired Orange
Switzerland through his NJJ Capital investment vehicle in 2015,
and renamed it Salt.
The fund manager said that Salt was "already unpopular" with
some bondholders, after it announced in September 2015 that it
would begin offering investor conference calls only on an annual
basis instead of quarterly.
Most bond investors see quarterly investor calls as a
fundamental necessity for covering companies effectively, with
very few issuers straying from this convention.
Since cancelling the calls outright initially, Salt has
since reintroduced them on an ad hoc basis, hosting calls for
some quarters but not others.
"This whole process has enlightened them on the value of
engaging more with their investors," the banker said.
"They've always thought: 'If we deliver operationally, why
should people care?' But communication builds up good will, and
helps analysts understand the nuance of what's going on under
(Reporting by Robert Smith)