Tim-Hellas goes High-yield heavy

Apax Partners Worldwide and Texas Pacific Group are set to become the first private equity sponsors to finance a European LBO almost entirely in the high-yield market. The new owners of Greek wireless company TIM-Hellas are on the verge of selling a €1.28bn two-part dual currency transaction, which comprises a €925m seven-year non-call one first priority senior secured 2012 floating rate note and a €355m eight-year non-call four 2013 senior note. Pricing is scheduled for September 30, although a banking source at one of the leads in New York said that pricing could be pushed back until October 3 to take into account roadshow meetings in the US on Friday.

Guidance on the floater is 350bp over three-month Euribor. Talk on the senior notes is in the 8.75% area. JP Morgan and Deutsche Bank are leading the sale. The FRN will be one of the largest-ever to be sold in Europe, but what makes the deal really stand out is the lack of loans.

A typical LBO funding structure includes debt with a maturity of five to 10 years, with a maximum of nine years for bank debt and 10 years for a bond. Europe is no stranger to senior secured bonds, however. Private equity owned cablecom became the first company in Europe to refinance bank loans from a position of strength with senior secured bonds in April, while both Damovo and Concordia Bus sold senior secured bonds as part of their respective debt restructurings.

The offering from TIM Hellas however marks the first time a European LBO has been financed almost completely in the bond market giving the sponsors more financial flexibility (there are no bank maintenance covenants restricting capex fund raising), while also removing mandatory bank debt amortisation payments.

The decision not to go down the loan route is a complete U-turn from the recent trend of private equity owners opting for mezzanine and second lien over bonds favouring the flexibility in terms of early pre-payment and amendment.

The transaction also includes a small seven-year revolving credit totalling €250m, which closed in May and a €110m PIK (likely loan) element. There are maintenance covenants in the revolver, but this is undrawn and it is possible that the facility could be reduced because the company “simply does not need the money.” The sponsors are taking €50m of the PIK. Telecom Italia sold its 81% stake in TIM-Hellas to Apax and Texas for €1.1bn earlier this year. The private equity duo is acquiring the remaining 19%, and shareholders are due to vote on the merger on October 4. The buyout values the company at €1.6bn, making it the largest leveraged buyout in Greece to be financed in the high-yield market.