NEW YORK, Sept 29 (IFR) - Investors piled billions of orders
into a US$1.3bn bond from media giant Viacom on Thursday,
betting that a possible merger with CBS would help turn around
the struggling business.
The deal was one of the most heavily oversubscribed
investment-grade bonds of late, notching up an US$11bn order
book even as pricing was tightened sharply during bookbuild.
It was M&A speculation that largely drove demand for the
trade - and attractive features that bolstered investor
Sumner Redstone's National Amusements, the majority
shareholder of CBS and Viacom, on Thursday proposed a merger of
the two companies, suggesting a reversal of a split made 10
"If Viacom and CBS do merge, spreads could tighten in
another 20bp," one investor who bid for the bonds told IFR.
Viacom is teetering on the brink of junk with ratings of
Baa3/BBB-/BBB. Moody's Investors Service downgraded Viacom just
this month, citing a weaker-than-expected rebound in operating
performance and high debt.
Its credit spreads were in any case under pressure in recent
weeks following dismal results, rising leverage and a management
shake-up that included the firing of its CEO Philippe Dauman and
resignation of interim CEO Thomas Dooley.
But analysts believe a re-merger would be a credit plus for
Viacom - whose cable television networks include Comedy Central,
MTV and Nickelodeon. CBS has slightly higher ratings of
Spreads on its outstanding 3.875% 2024s rallied by 32bp this
week and the growing optimism about the credit was further
reflected in the pricing of the new deal on Thursday.
The new bonds priced more than 50bp inside initial price
thoughts - one of the most aggressive moves in months in the
primary - with US$400m five-year bonds pricing at T+120bp and
US$900m 10-year at T+195bp.
At those levels, the bonds came with no new issue concession
over Viacom's outstanding bonds.
Part of the attraction for the bonds was the deal structure
that protected investors.
During a two-day roadshow this week, the buyside insisted
any new deal should have ratings covenants - and the company
included just that in Thursday's deal.
If Viacom's ratings fall into junk, the coupon on the debt
increases 25bp per agency per notch below investment grade -
capped at 2%.
"They said they were committed to their investment grade
rating on the calls, but the step-ups showed us they meant it,"
another investor said.
The investor cautioned the bond spreads could widen if the
merger does not happen - but it was a risk many seemed willing
The proceeds from the two-part deal, split between five-year
and 10-year tranches, will help the media company boost
liquidity and refinance short-term debt maturities.
Bank of America Merrill Lynch, Citigroup and Morgan Stanley
were the lead bookrunners.
(Reporting by Hillary Flynn; Editing by Natalie Harrison and