Looking to take advantage of an increase in optimism towards Argentina after Mauricio Macri took power in December 2015, and following the Argentine government’s agreement with its holdout creditors after more than 10 years of dispute – which was facilitated by Macri only a few months after he took power – the international capital markets reopened for most Argentine corporate issuers.
Argentina attracted worldwide attention in April when the government sold US$16.5bn in bonds through a number of different tranches, more than double the previous high for an emerging-market sovereign in a single issuance.
This was followed by issuances on the international markets from Argentine companies which have amounted to around US$4bn so far this year. Corporates were keen to ride the wave of enthusiasm within the international investor community which had been searching for attractive returns at a time when 10-year US Treasury Bills had been paying around 1.5% and bonds in other parts of the developed world offered even less.
In Cablevision’s case, we have always been pretty active in the markets and have a close relationship with foreign investors, particularly those in the US. This was in spite of the lack of capital market interaction and financing opportunities for other Argentine issuers over the last decade.
As a telecommunications company, Cablevision is in a capital intensive and rapidly evolving industry that places high demands on capital expenditure. To this end, the company has to remain constantly active in its allocation of capex.
The company has invested approximately US$3bn during the last 9 years mainly in the deployment of its networks which has enabled it to position itself as the number 1 Pay TV and broadband provider in Argentina.
Also in 2015, Cablevision acquired Nextel’s operations in Argentina, which aimed to give the company its first step into the wireless sector, another capital intensive industry.
Despite being in a capital intensive industry, over the last few years Cablevision has been deleveraging substantially, at levels not seen from similar telecoms companies in other Latin American countries. This provided us with an opportunity to tap a market window when it appeared.
Low leverage, combined with a lot of positive sentiment towards Argentina – which resulted in a compression of yields and a lower cost of capital – led to Cablevision’s decision at the very beginning of 2016 to start the process for accessing the international capital markets for funding.
The first task for issuing on the international markets was to choose the banks that were going to be the underwriters together with the co-managers. To do that we first considered those banks that had supported the company during tougher times, when there was practically no access to the capital markets. We chose banks that had a close relationship and strong track record with the company.
We finally mandated 3 international banks, Deutsche Bank, Itau, JP Morgan and one local bank, ICBC, as well as well recognised US and Argentine lawyers Cleary Gottlieb Steen & Hamilton, Linklaters and Errecondo, Gonzalez y Funes and Marval, and started working on the prospectus.
It took us approximately 8 weeks since we first filed the prospectus with the CNV to get it approved, and we were the first Argentine corporate to issue a note under the new CNV regulation on book-building allocations.
Officials from the company participated in a full 4-day roadshow, organised by the banks that covered Los Angeles, New York and Boston and London. There was a lot of interest in Cablevision since we touched base with almost 40 accounts, and even participated in calls with investors based in Asia. Due to the high level of demand from investors wanting to meet with Cablevision, we had to split into two teams in order to address the investor base.
There were a lot of discussions with banks and investors about the potential cost and tenor for this instrument. The company believed that Argentina’s yields were going to compress more so we decided to go with a 5-year note instead of a longer term instrument. What happened afterwards confirmed our theory as all the yields of the Argentine sovereign tightened by more than a 100bp.
Following the roadshows, in June Cablevision issued its US$500mn bond due in 2021 with a coupon of 6.5%, which was priced at the tight end of the range.
We were able to achieve the lowest corporate yield from a pure Argentine issuance in the international markets in the last 15 years on the day of issuance, which was assisted by the fact that we were the first Argentine corporate to issue a note after the government came to an agreement with the holdouts.
The orderbook reached an oversubscription of almost 7x, demonstrating the high interest from investors in this type of credit, and we received orders from more than 230 investors.
The note was mainly allocated among US investors with 58%, followed by a 21% allocation in Europe and 17% across Latin America. Investors were principally asset managers who constituted around 66%, hedge funds at 20% and with private banks and others at 14%.
Today this transaction, together with its covenants structure, cost and tenor is taken by the whole market as a benchmark for all upcoming issuances.
However, the track record for Argentina’s corporate-bond sales has been mixed. Out of nine deals this year, two had to be pulled or cut back. While some better-known companies were able to garner yields below 7%, other have had to pay more than 9% to generate interest.
Cablevision has a lot of projects planned going forward and we think that the company is very well positioned to continue growing in an evolving and competitive industry, and we will continue to monitor the national and international capital markets – particularly due to the demand for debt from strong Argentine corporates.
