Allegiance Telecom bank debt continued to trade as high as the 97-98 range following speculation on how potential acquirers may value the company. The paper jumped from the 92-93 context, after reports indicated that Qwest Communications International could be looking to acquire the company for about $3 million in cash and assumed debt.
One scenario is that Qwest would basically assume the bank debt liabilities--perhaps using cash to pay down some exposure and entice the banks--and then direct the $3 million to the bonds, explained one buysider. At the end of September, Allegiance had $472.7 million drawn under its credit facility and $284.6 million of unrestricted cash and short-term investments. Still, the market is disjointed in trying to decide the appropriate amount of debt the company can carry, how much cash is needed to fund the business and how possible acquirers have valued the company, explained one person familiar with the situation. He added that the market is trying to determine the baseline bid and the upside potential.
There is also always the possibility of a bidding war. Level 3 Communications , Corvis Corp , Sprint Corp . and WilTel Communications Group are just some of the names tossed around as companies that could benefit from acquiring the facilities-based network of Allegiance. "Should there be an auction coming out of bankruptcy, that would represent the relevance of Allegiance's broad network footprint and scaleable back office to address a facilities-based approach to the SME market," said Andrew Albrecht, v.p., investor relations and corporate development at Allegiance.
The acquisition speculation is reflecting positively on other competitive local exchange carrier names. McLeodUSA bank debt has been moving up to the mid 60s. The loans for Choice One Communications and ITC^DeltaCom have also been creeping up in recent weeks to the 73-75 and 90-92 ranges, respectively. An acquisition of Allegiance would provide a comparison point in an industry that has been relatively quiet, explained one dealer.