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Knee-deep in junk

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.

Collapse shrugged off The case of NTL is even more extraordinary. Barely a year has passed since the cable operator collapsed under the weight of its borrowings and swapped its debts for equity. So it may seem astonishing that investors are pumping in more cash.

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