Digicel Goes Large in Refi Effort

Digicel has raised $1.5bn in new 2020 NC4 bonds, raising funds for a liability management operation targeting two series of outstanding 2015 bonds. In a continuing demonstration of demand for high-yield credit in the region, the final size represents an increase from the $700m that the Jamaica-based telecom had announced early Wednesday morning, and covers the outstanding size of the two series to be replaced. The bond priced at par with an 8.25% coupon to yield at the tight end of 8.25%-8.50% guidance. The bond traded up one point Wednesday afternoon, according to investors. Despite a Caa1/B minus rating on the transaction, investors cited overall demand for yield and the issuer’s name recognition and continued deleveraging story as pushing demand. “There has been almost no new high yield issuance recently, and Digicel is a known name and doing pretty well,” says an EM investor following the trade, noting that Digicel’s 2018 bonds were trading around 8.0%, or 7.5% on a yield-to-worst basis. Demand was heard to have reached at least $3bn, and buyers included a mix of EM-dedicated and high yield-dedicated investors. Fitch cites a strong operating performance, diversified revenue, free cash flow generation and expectation for stable credit metrics, which are balanced against high leverage, medium-term refinancing risk, and exposure to low rated countries. Short-term liquidity is “manageable,” it says, thanks in part to Wednesday’s refinancing. Calling the refinancing effort “favorable,” Moody’s notes that adjusted leverage should remain between 4.5x-5.0x in the next two years, and the likely future use of debt to fund consolidation of its Central American holdings weighs down its rating. Citi, Barclays, Credit Suisse, Deutsche Bank, Davy and JPMorgan managed the sale, done through the Digicel Group Limited entity. The proceeds will fund a tender offer launched Wednesday that targets any and all of Digicel’s $415m 9.125%-9.875% 2015 toggle notes and up to $245m of its