TheChek News Flow

* Flows: Something old, something new European fund flows were in flux this week, with a mix of new developments (e.g. a spike in equity flows) and continuing trends (e.g. lacklustre fixed income flows). This fits with our expectation that as the immediate impact of European QE fades, demand for mutual funds will be more volatile, and more nuanced, in 2Q15.

Demand for global equity products has diverged markedly depending on the strategy’s exposure to US markets. EPFR data suggests that flows into global ex-US equity funds have outstripped flows into global incl. US funds by 5x over the last 12 months. This dynamic has run counter to performance trends, with global incl. US funds returning c.13% over the period, compared with a c.3.6% return from global ex-US funds.

European investors continued to redeem longdated govt. bond funds this week, which led to the third consecutive week of fixed income outflows from European investors.

In our recent report, 5 trends to watch in 2Q15: GAM to Buy, Buy Azimut (CL), Sell BME (May 19, 2015), we argued that stock-specific issues in the sector are likely to gain more attention given the uncertain flow environment. We upgraded GAM Holding to Buy (from Neutral) on the basis that management’s restructuring programme has the potential to drive earnings growth regardless of flow vicissitudes. We incorporate SFr25 mn of efficiency savings in our forecasts, which imply 2016E EPS that is 7% above I/B/E/S consensus.

Gapping up
In reaction to strong earnings/guidance: TNP +4.3%, FL +2.4%, MENT +2.4%, BORN +2.3%, DE +2.1%, JMEI +1.7%, HPQ +1.1%

M&A news: EROC +17.1% (to merge with subsidiary of Vanguard Natural Resources (VNR) for total consideration of $474 mln in Vanguard Common units and Eagle Rocks net debt of $140 mln; Consideration valued at ~$3.05 per share), FRS +13.6% (to be acquired for $34.00 per share in cash), VOD +1.4% (comments from Goldman indicating that asset sales are more likely)

Other news: LONG +33.7% (Expedia sells its majority stake in eLong), NSPR +18.3% (announced that its CGuard Embolic Prevention System reported positive results in PARADIGM, at the EuroPCR conference), ABTL +17.2% (acquires Dealix Corporation and Autotegrity for $25 mln; expects the acquisition to be accretive to net income in 2015; Raises FY15 guidance ), AAU+11.1% (announced significant silver mineralisation in Ixtaca Infill Drilling Program, hits 31.50 Meters of 0.39 G/T Au, 117.0 G/T Ag), CTRP +5.6% (CTRP acquired a 37.6% for ~$400 mln from EXPE), HIMX +2.8% (Digitimes indicated Samsung (SSNLF) is ramping up IC related purchases), BBRY +2.7% ( authorized a share repurchase program to purchase for cancellation up to 12 mln BlackBerry common shares, or ~2.6% of the outstanding public float), TWC +2.6% (Charter (CHTR) is in discussions to purchase TWC for more than $170/share & FCC Chair may not reject any cable deal, according to WSJ), PTCT +2.3% (announces that the benefit assessment by Germany's Federal Joint Committee, indicates that Translarna proivdes a benefit for ambulatory patients with Duchenne Muscular Dystrophy), HSBC +1.3% (confirms that it is exploring various strategic options for its operations in Brazil), OMER +1.3% (announces that the EMA's Committee for Medicinal Products for Human Use has adopted a positive opinion for Omidria 1%/0.3%), GLBS +1.2% (announced sale of a Panamax Vessel for a gross price of $5.5 mln), MT +1.1% (MT and and Steel Authority of India Limited, sign an MoU to set up an automotive steel manufacturing facility), CNHI +0.8% (DE peer)

Analyst comments: RWLK +8.5% (upgraded to Buy at Canaccord Genuity), SGYP +5.4% (initiated with a Buy at Canaccord Genuity), QURE +5.1% (initiated with an Outperform at Oppenheimer), STEM +4.4% (initiated with a Buy at Cantor Fitzgerald), CLLS +3.1% (initiated with an Outperform at Oppenheimer), QRVO +1.6% (initiated with a Buy at Goldman )

22-MAY-2015 14:10:00

By Claire Ruckin and Natalie Harrison

LONDON, May 22 (Reuters) - Acquisitive European telecoms firm Altice ATCE.AS surprised the market with yet another large M&A deal last week, revealing plans to buy US regional cable firm Suddenlink Communications for $9.1 billion.

The move – its first across the Atlantic – follows the company’s purchase of rival firm SFR NUME.PA last year, which was financed with some $21.9 billion-equivalent in debt, across bonds and loans and in both euros and US dollars.

Its latest venture, like the SFR deal, is expected to be mostly financed in the US dollar market – though details are still sketchy.

The new money is likely to include leveraged loans or high-yield bonds, as well as a bridge to a bond, bankers close to the situation said.

The debt will be ringfenced at Suddenlink, so it will not be affected or restricted by terms around Altice’s group debt.

“It is a purely US business so it would make sense to raise the debt in dollars,” a banker said.

The rest of the purchase will be financed with $1.687 billion in equity, including a $500 million vendor loan note from BC Partners and CPP Investment Board, and $1.187 billion of cash investment from Altice.

JP Morgan is set to take the lead on the financing alongside BNP Paribas, and it will include $5.063 billion of existing debt and $1.755 billion of new debt. Both banks acted as financial advisers to Altice on the purchase of Suddenlink, the seventh-largest US cable player.

Other banks that have been regular participants in earlier Altice deals and might have been expected to be in the line-up – including Goldman Sachs, Deutsche Bank and Morgan Stanley – are unlikely to have a role on the Suddenlink financing due to client conflicts, bankers said.

LEVERAGE CONCERNS

Some analysts warned, however, that the deal was negative from a creditor perspective since Altice may not be able to achieve all the synergies it is hoping for.

“Altice is (again) promising a lot on synergies,” CreditSights said.

“If Altice fails to deliver or (more likely) fails to convince the market that what it is delivering is sustainable, the market could react harshly and the inexpensive funding on which it relies to make its levered-equity strategy work could become less readily available.”

Altice will buy 70% of Suddenlink from existing shareholders BC Partners, CPPIB and Suddenlink management. It said total leverage, including full synergies, will be 6.1 times 2014 Ebitda.

Altice is expected to apply its usual formula at Suddenlink, namely aggressive cost cuts and attention to profit instead of customer numbers. Altice aims for $215 million in cost savings per year at Suddenlink.

But Moody’s is not totally convinced. The agency placed Altice’s B1 secured debt rating and B3 senior note ratings on review for downgrade, citing the fast pace of the company’s acquisition strategy.

The acquisition of SFR was only a few months ago, and Altice’s acquisition of Portugal Telecom PTC.LS has not yet closed. In addition, Altice has also approached the US’s second-biggest cable provider, Time Warner Cable TWC.N, over a deal, creating a potential bidding war with John Malone’s Charter Communications CHTR.O.

OUTSTANDING

It is also uncertain what will happen to the outstanding bonds issued by Suddenlink.

The company has two: a 6.375% 2020 and a 5.125% 2021. The former will be repaid at 101 since the change of control would be triggered by the acquisition, but the 2021 – currently trading at around 97 – will only be repaid if the company is downgraded by one or more ratings agencies.

Suddenlink’s leverage is due to rise to 7.6 times earnings, significantly higher than the current level of 5.5 times, according to CreditSights, and they expect a downgrade. Others are less certain.

“If we were more confident about a downgrade, the 5.125s could have about four points upside and we would become more constructive on them,” Citigroup analyst David Phipps said. CreditSights, meanwhile, expect the yield on any new Suddenlink bond to be more attractive.

“We would be sellers … looking for substantial yield on the new issue (much higher than the 5%–6% average cost of debt suggested by Altice’s CFO),” CreditSights said.

- Declines in energy and commodity prices will likely continue