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Seat Pagine Gialle has just sold e1.3 billion of junk bonds, the largest high-yield issue ever priced in Europe's single currency. The Italian directories business completed its deal just one week after UK cable operator NTL sold the biggest-ever sterling-denominated junk bond, worth £375 million ($664 million). What can explain these record-breaking achievements?
Both Seat and NTL have idiosyncratic features that helped them stretch the limits of the market. Seat comes from a cash-cow industry where no major public borrower has ever gone bust. And its financial position is among the most secure in the directories business, because of a quasi-monopoly position in its domestic market. Seat converts an enviable 80% of its underlying profits into cash. This helps explain why junk-bond investors were keen to lend it more than e1 billion, on a subordinated basis, even though it is leveraged up to the gills.
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