Esat Telecom
Dublin-based Esat Telecom Group’s €175 million 10-year issue on October 21 wins the high-yield bond category through a mixture of the skill of the lead managers, the high reputation of the issuer itself, and plain good luck.

At the time of issue, the high-yield market was particularly challenging, particularly in the US, says Jim Amine, head of high yield and leveraged finance at co-lead manager CSFB in London. High default rates and oversupply in the US meant deals in Europe too had received a
lukewarm investor response in the previous
few weeks.

But co-lead managers CSFB and Chase Manhattan managed to sell the deal so effectively that it was five times oversubscribed, with a yield of 11.875%, lower than the 12.125% that fund managers say they had originally estimated.

Amine attributes the success of the bond to the excellent returns in the telecoms sector, and to the decision to issue $65 million (€64 million) in equity at the same time. “The equity deal helped the fixed-income deal by reconfirming the value of the company and the acquisition and reducing overall leverage,” says Eric Capp, vice-president in high-yield corporate finance at Chase Manhattan in London.

The Esat bond opened up the market, says Amine. Following what many investors described as a barren period, in the following two months 11 telecom issuers, including UPC and NTL, came to the European high-yield market and raised the equivalent of $4.7 billion, says Amine.

To cap it all, Esat then enjoyed what Eran Peleg, corporate bond fund manager at Gartmore, calls “positive event risk”: a takeover battle. The price of the bonds had risen 7.25 euro cents to 107.25 by the beginning of December. Then Swedish telecoms company Telia and Norwegian telecoms company Telenor, prospective merger partners, made a joint hostile bid for Esat on December 1, sending the price up 5.125 euro cents to 112.375 in a day. The price then leapt further to 125 from 118.75 after British Telecom announced in January 2000 that its £1.5 billion (€2.4 billion) cash offer for the company had been recommended by the Esat board.

Other highly praised deals included Dutch packaging company Kappa, lead managed by Barclays Capital, and Spanish telecoms company Jazztel, lead managed by CSFB and Merrill Lynch. Kappa “set the benchmark for industrial high-yield” in Europe according to one fund manager, and Jazztel, a popular deal that included warrants, offered rare exposure to the Spanish market.