Privately owned communications infrastructure firm Arqiva successfully extended its maturity profile in early 2014, after a major round of refinancing a year earlier.

Arqiva may be a little-known, private company but it provides a range of critical services across the UK. The business owns and operates 1100 TV masts (through which the main channels the BBC, ITV and Channel 4 broadcast to the country), radio masts for FM and digital broadcasting, and mobile phone masts rented out to all the major networks. As part of a broader communications remit, Arqiva also owns broadcast spectrum, which allows certain independent TV channels to operate. It holds satellite capacity and it facilitates the use of smart meters by energy companies.

If the company were quoted, it would be in the FTSE 100 Index. Instead, it is owned by a consortium of infrastructure investors, including the Canadian Pension Plan Investment Board, which owns 48% of the shares, and Australian group Macquarie with 25%.

Macquarie formed the business in 2005, when it bought NTL Broadcast and renamed it Arqiva. The firm then went on a pre-crisis buying spree, bringing together terrestrial TV and radio infrastructure in the UK for the first time in years. By 2007, Arqiva had run up a massive debt pile of more than £3bn ($5.01bn), due for repayment in 2014. Realising that a refinancing was sorely needed, Arqiva appointed Roger Burge as director of treasury and corporate finance in November 2010, with a specific remit to refinance the debt mountain.

“We started work in 2011 and completed the refinancing in February 2013. It was a long and complex operation,” he says.

Ultimately, the group decided to pursue a whole business securitisation, a route normally associated with utilities and pub companies. The group raised £600m of high-yield debt and £2.3bn of investment-grade debt, including two bank facilities of three and five years’ duration.

“The whole business securitisation created a stable borrowing platform. It gave the creditors security over the company and helped us to secure an investment-grade rating. The refinancing gave us time to go out to different bond markets and secure longer dated debt,” says Mr Burge.

Longer maturities

An inaugural investment-grade £750m bond was issued in February 2013, but by the middle of the year, Mr Burge began to think about a second sterling issue. “We have just less than £1bn of debt covered by 20-year interest rate swaps taken out in 2007. Clearly, it would be very expensive to break them right now so we were limited in the amount of sterling bonds that we could issue,” says Mr Burge.

Arqiva did have £1.3bn of debt that was free of these onerous swap liabilities. Having raised £750m early in 2013, supplemented by £400m of US private placements later that year, Mr Burge knew he could still issue up to £164m of bonds in the sterling market. He decided to focus on an early 2014 launch date.

“January is a good time to issue in the bond market and we had some work to do, updating the rating agencies and the prospectus and presentation materials for investors,” says Mr Burge.

Arqiva had used 19 banks for its refinancing, of which 14 were active bookrunners. Some had subsequently helped the company with other facilities, so Mr Burge appointed HSBC, Mitsubishi, Société Générale and Santander for the sterling deal. “All our banks have done an excellent job for us so we have rotated our bookrunners to make sure they all get a turn,” says Mr Burge.

The company undertook a series of investor meetings and a general investor call on January 22. Response from investors was broadly positive and a week later, at 9am, books were opened.

Strong performance

Arqiva’s inaugural sterling bond had been issued at a spread of 250 basis points (bps) over gilts. It had performed well in the secondary market, however, so initial pricing thoughts on the second deal centred on a spread over gilts of about 210 bps. The expected maturity date on the bond was set at June 2030, although there is a second, ‘legal’ maturity of December 2037.

“We expect to repay the bonds in 2030 but if by any chance we can’t, we still have seven years’ grace before the bondholders send in the receivers. But certain conditions will come into play if we don’t repay on the earlier date so there are powerful incentives to make sure that we do,” says Mr Burge.

Investors accepted this structure with equanimity. By 11am, the book had reached more than £400m and bookrunners revised their pricing guidance to between 203bps and 207bps over gilts, ultimately fixing at the low end of the range.

“We were very pleased with the outcome. The spread has come down by nearly 50bps compared to where we issued a year ago and we would have liked to do more if we had been able to,” says Mr Burge. 

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