Deals for telecom companies are getting their pricing goosed up in a market finally starting to push out spreads. Pricing on deals for Globalstar and Aspect Communications have been increased and pricing on Level 3 was increased before syndication closed. "[They] have bad histories, they leave a bad taste," said one investor about Globalstar and Level 3. "If you have to explain to people why you did it...It's fool me once, shame on you, fool me twice, shame on me. They just have bad names." Globalstar and Level 3 are two companies that have long been known as difficult names in terms of hitting proposed numbers.
Wachovia Securities launched the credit for Globalstar May 31 and commitments were due June 15, but the book has not closed yet. One investor said that the buyside was hearing pricing had been upped to LIBOR plus 5 1/2% with 101, 102 call protection and is being offered at 99. When it launched, the financing consisted of a five-year, $100 million term loan priced at LIBOR plus 4%. The deal also includes a $50 million revolver and a five-year, $50 million delayed-draw term loan. A Wachovia banker and a Globalstar official did not return calls. A Wachovia spokeswoman declined to comment.
JPMorgan and Deutsche Bank's deal for Aspect Communications also saw pricing increase. The banks increased pricing on the $725 million first lien 50 basis points to LIBOR plus 3% and increased pricing on the $385 million second lien 100 basis points to LIBOR plus 7%.
Merrill Lynch brought the refinancing for Level 3 to the market June 7 asking for a four-and-a-quarter basis points cut on a $730 million term loan. The proposed deal also stripped a number of covenants. Before it broke for trading last Thursday, breaking at 100, according to a trader, the bank pushed up pricing to LIBOR plus 3%.
The company has a lot of debt -- one investor estimated it had close to $6.5 billion -- and a lot of leverage, about 15.8 total debt to EBITDA, according to a Bank of America research report. A Merrill banker did not return calls. Sunit Patel, group v.p. and cfo at Level 3, was traveling and could not be reached. A call to a spokesman was not returned by press time.
"People have been burned in this type of business before," said the investor who did not do the deal. "It's not a great business; you're not generating cash, so how do you get repaid? And now pricing has been cut by more than half, you are not going to be happy," he said. "A company like Level 3 can get it done but it doesn't mean that people think it is going to prosper, [it can get done] for other reasons," he said.
In general, pricing continues to widen, a welcome relief for investors. Spreads on both single B and BB credits widened by about four basis points last week, but have risen about 35 basis points for single B credits and 21 basis points for BB credits over the last month, according to a banker.
