BSkyB found strong demand for a multi-tranche deal across two currencies to fund a major acquisition strategy across Europe.

In July of this year, UK broadcaster BSkyB announced that it would be acquiring Sky Italia and 57.4% of Sky Deutschland from US media corporation 21st Century Fox. The deal makes Sky the number one pay TV provider in three of the largest markets in Europe – the UK, Italy and Germany – but the deal was also expensive, involving £4.9bn ($8.01bn) of cash and the transfer to Fox of BSkyB’s 21% stake in the National Geographic Channel.

Over the summer months, therefore, BSkyB placed 156 million new shares, paid out cash from internal resources and issued three new debt facilities, including two short-term bank loans. From the moment the debt was issued, BSkyB knew that it wanted to refinance the shorter term transactions in the capital markets.

Euro focus

“We wanted to refinance the debt early on. Markets were in good shape and the environment was benign so it made sense to lock in historically low interest rates,” says BSkyB group treasurer Simon Morley.

All in all, BSkyB wanted to raise more than £3bn from the capital markets. The company had accessed the dollar market before but it was buying two European businesses and the Euromarket had become increasingly receptive to new issuance in the second quarter of 2014.

“We were buying two euro assets so raising money in euros seemed simple and efficient. Of course, it is quite simple to issue in dollars and swap into euros and the businesses will be generating cash in euros so we will match exposures to euros going forward,” says Mr Morley.

However, BSkyB had been well received in the US in the past so the group was keen to tap into that market too. “We’d received strong support in the US so we decided the best solution was to access liquidity in both the euro and dollar markets,” Mr Morley explains.

Barclays and Morgan Stanley were the financial advisors and joint corporate brokers on BSkyB’s acquisitions and they had underwritten the bank facilities, along with JPMorgan. All three were appointed bookrunners on the capital markets fund raising and, working with the company, they devised a four-tranche transaction, with two tranches in dollars and two in euros.

“The Euromarket sweet-spot is seven years and the rate for 12-year money was extremely attractive, so it made sense to issue in those two maturities. In dollars, five- and 10-year terms are the most popular so those were the maturities we went for,” says Mr Morley.

Banco Santander was added as a bookrunner for the euro transactions and Société Générale for the dollar tranches. BSkyB even appointed RBS to lead a sterling tranche but ultimately chose not to issue in the UK currency. “There was so much appetite for the dollar and euro bonds that we didn’t need a sterling deal in the end,” says Mr Morley.

Talking the talk

The company embarked on an extensive European roadshow during the first week of September, speaking to more than 250 investors, in group meetings, one-on-one sessions and via conference calls.

“We started the roadshow just as people came back from their holidays, so the timing was great and we hit the market running. People were interested in finding out more about our core business and they also wanted to know the strategic rationale behind the acquisition, the cash-generative nature of the company and our deleveraging plans,” says Mr Morley.

There was a lot to explain. BSkyB is rated Baa1/BBB+ by Moody’s and Standard & Poor’s but it is on negative credit watch with both agencies. Under German law, BSkyB has to tender for the 42.6% of shares in Sky Deutschland that it does not already own. The result of the tender will be known later this month but it is expected to lead to downgrades of one or two notches, leaving the company just above sub-investment grade.

“The education process was very important. We could explain what we were doing and why and we also got feedback about the maturities that investors were interested in and the extent of their appetite for BSkyB paper,” says Mr Morley.

On September 8, the company tapped the Euromarket with a €1.5bn seven-year deal and a €1bn 12-year transaction. Initial price talk centred on mid-swaps plus 90 to 95 basis points and mid-swaps plus 125 to 130 basis points, respectively. Demand was so strong, however, that the pricing came in to a spread of 82 basis points for the shorter term tranche and 117 basis points for the longer dated deal – equivalent to respective coupons of 1.5% and 2.5%.

The following day, a $750m five-year deal and a $1.25bn 10-year transaction hit the market. Again, spreads came in by about 10 basis points, leaving the company with a coupon of 2.625% on the 2019 tranche and 3.75% on the 2024 paper.

“We were delighted with both sets of deals. The order books were extremely strong and ended up about four times oversubscribed in both dollars and euros. We had made sure that we were well prepared and our work paid off. Everything went according to plan,” says Mr Morley.

The company cannot forecast the outcome of its tender in Germany but there is always the chance that it will return to the market, particularly if conditions remain benign. 

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