NTL Bonds Soar With C&W Deal, France Telecom

NTL's agreement last week to buy Cable & Wireless, which puts it in perfect position to win the U.K. cable war, was viewed as a major plus by bondholders, as NTL's bonds tightened 50 to 100 basis points in secondary trading.

NTL, which is based in New York but is the biggest cable operator in the U.K., will pay GBP8.2 billion ($13 billion) for Cable & Wireless, an acquisition that will essentially double its customer base in England to 2.8 million. France Telecom, in turn, is investing about $5.5 billion in NTL for a 25% stake in the high yield issuer.

As a direct result of the cash infusion from France Telecom, NTL will likely receive an upgrade to a stronger single-B, or possible a double-B credit, according to David Allen, cable analyst at Morgan Stanley Dean Witter.

The consolidation of the U.K. cable sector has been an ongoing issue, with all the major players issuing high yield debt to finance their expansions in a young industry. And all the buying even got the attention of some U.S. companies, such as Microsoft, which owns positions in all three major players - NTL, Cable & Wireless, and Telewest.

Some market players had expected NTL to win the ever-changing cable game in the U.K (HYR 05/24/99). The leading school of thought earlier this year was for NTL to simply buy the other two players-Telewest and Cable & Wireless. NTL is regarded by many in the market as having the best management, but it also has the weakest balance sheet, making it a favorite play with the most potential upside, according to investors.

Allen said another reason NTL is a favorite play is due to its industry-best penetration in its service area, as well as the lowest customer cancellation rates.

Further consolidation in the cable sector should not become an antitrust situation, analysts said, because the end customer only has one choice of cable companies anyway.

Plus, there is indeed competition for home video entertainment in the form of BSkyB and British Telecom, which is investment grade and also getting into the cable business.