RCN Corp.'s bank debt levels continue to hold their ground despite warnings from the company that a Chapter 11 filing will likely be the chosen vehicle for its long awaited reorganization. Traders quoted the name in the 961/2-98 range and noted that the company will likely pursue a pre-packaged plan of reorganization. "The bank debt is money good," said Chris Roberts, a high-yield analyst at Tejas Securities.
This time last year, the market for the bank debt reflected a far different story, as RCN paper languished in the mid-to-high 70s. But now, even on the verge of bankruptcy, bank debt levels did not return to their formerly distressed levels. Roberts explained that Chapter 11 reorganization would stand to benefit lenders. For starters, a Chapter 11 filing will prohibit the company from burning through some cash, he said. Other factors including the improved cable asset valuations and improved operations are supporting the bank debt's current levels as well, he added.
The performance of the company is also contributing to the productiveness of RCN's negotiations with its creditors, explained Jim Downing, RCN's director of investor relations. He noted that the company's cost-structure is more efficient compared to a year ago and that the company's operations are now EBITDA positive.
An amendment in March of last year also gave lenders solid backing. Under that amendment, RCN was able to issue more senior debt and adjust operating and financial covenants. But in return, revolver availability was reduced to about $15 million. The company was also required to maintain at least $100 million cash collateral for the benefit of the lenders--as of Sept. 30 there was $212 million. Moreover, RCN would have to direct half of the first $100 million in asset sale proceeds and 80% of proceeds in excess of $100 million to pay down the bank debt. Roberts noted that bank debt commitments are still slated to receive proceeds from the $120 million sale of the company's Carmel, N.Y. cable system.
RCN originally entered into the credit in 1999 with lead bank J.P. Morgan. The credit initially included a $250 million, seven-year revolver; a $250 million, seven-year "A" loan; and a $500 million, eight-year "B" term loan. Since then the credit has been reduced due to various prepayments and amortization and about $521 million in term loans were outstanding as of Sept. 30. The deal is senior secured and collateralized by substantially all of the assets of the company and its subsidiaries. RCN also has a $41.5 million term loan from Evergreen Investment Management.
In a statement, RCN noted that it is continuing negotiations with its senior secured lenders and an ad hoc committee of holders of its senior notes regarding a restructuring of its balance sheet. "We anticipate using Chapter 11 to consummate a consensual deal," said Downing, in an email. Merrill Lynch is the company's financial advisor.