Investors were all worked up over the $7.2 billion in cable name paper that hit the market last week, but some expressed concern that at least one of the deals could be pushing the envelope a bit too much. The $5 billion deal for Charter Communications and the $2.2 billion credit for Cebridge Connections were welcome additions to a market looking for paper, investors said. But the pricing and reworked covenants on the Charter deal could be a bad harbinger, they added.
"It is not covenant lite, but it is seeking as part of the amendment process dramatic changes to covenant levels," a portfolio manager said. JPMorgan, Bank of America and Citigroup held a bank meeting Friday, after press time, in which they were anticipated to cut pricing on the term loan to 275 from 300 basis points and 325 basis points on a triple C-credit. This is a slippery slope, a bull market phenomenon that we have to address." A Charter spokeswoman, a JPMorgan spokesman and B of A spokeswoman declined comment. A banker at Citigroup did not return a call.
The company currently has a $1.5 billion revolver and a trader said the market anticipated the banks adding a new $300 million revolver. The new term loan is a refinancing of an existing $3 billion "B" loan and $2 billion "A" loan into a new $5 billion term loan "C" in order to push amortization which is due in September 2007 on the term loan "A."
Another investor was slightly apprehensive about the credit itself. "It is a company that has had its issues in terms of bankruptcy on an ongoing basis," he said. According to Moody's Investors Service, Charter was the largest bond defaulter in 2005, and completed a distressed exchange of over $6.8 billion of bonds last September. But according to an April 6 filing with the Securities and Exchange Commission, Charter anticipates actual revenue for the first quarter of 2006 to be between $1.365 billion and $1.380 billion, an increase of about 7.5% to 8.5% compared to the same period last year.
Cebridge's deal, led by Goldman Sachs and Credit Suisse, backs the company's acquisition of assets from Charter and Cox Communications. The financing consists of a seven-year, $200 million revolver and a seven-and-a-half, $2 billion term loan "B." Pricing is expected this week after ratings are assigned. The deal officially launched last Thursday at a bank meeting in New York at the St. Regis Hotel, but Goldman began speaking with individual investors last Tuesday. There is also a $280 million asset-sale bridge, which is essentially a separate facility backed by a small number of company assets. Cebridge officials did not return calls.
