I've previously sung the praises of Virgin Media's top-notch treasury team, and once again they've shown what they're made of. On Monday the company announced a £500m offering of senior secured notes, following on from the senior facilities amendment process of last year, which allowed the company to issue bonds ranking pari passu with existing bank debt, in order to manage maturities. This in itself was not surprising, but demand was such that the company was able to up-size the transaction to raise a jaw-dropping three times what it initially aimed for. The two tranches (7% sterling and 6.5% dollar) priced at 98.5, to yield 7.25% and 6.75%, respectively, and traded up on the break, but appear to be struggling somewhat now.
This development tells us that there is an eye-watering level of liquidity looking for a home, though I am puzzled as to why, in the face of rising interest rates in the future, it chose this issue and this sort of pricing to get excited about. More interesting to me is what this deal says about Virgin Media's expectations for the capital markets in the near term. Most of the new issues we have seen in recent months (including Virgin's own issues) which have been up-sized have typically been increased by 50%, or in extreme cases, to maybe double the initial expectations. But three times? Audacious stuff indeed, though completely understandable if investors are trampling one another to hand you money on favorable terms.
Thinking back to the dark days of Q4 2008, when everyone seemed to think the world was going to end, Virgin Media was among the first in Europe to take a proactive stance towards managing its maturity profile, itself a bold move against a backdrop of widespread scepticism and despair, and it continued to manage the process throughout the following year, tapping the market in May, July and November. In doing so, it would appear that the company correctly read the course that the market would take as the mood lightened and risk appetite returned, and it was opportunistic in taking advantage of the dynamic.
With this latest gargantuan issue, however, I feel an element of "last gasp," and I am wondering if we should take a negative view of what this says about the company's reading of the market in 2010, i.e., the door is closing so take the money and run. If that's what they're saying, I'm prepared to listen.
Now ONO, which has endured far more stress and waited far longer to deal with its own issues, is going to attempt broadly the same solution, albeit in a much more compressed fashion. I will be very interested to see how it fares in comparison.
