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GCI Explores Return In Hazardous Market

Anchorage, Alaska-based GCI is exploring the feasibility of bringing back to market an institutional loan that was pulled this summer amid the growing telecom mess, and the company knows any return trip will be expensive. "If we go for a refinancing, the pricing will definitely be higher than the pricing quoted in the summer," said Bruce Broquet, GCI's v.p. of finance. GCI has credit facilities coming due in July 2005, but is going into the amortization phase of the lines, he said. By refinancing early, GCI can increase free-cash flow and go after new business, he explained.

The pro rata banks cannot take on the level of risk they have handled in the past, which is why the institutional market is being approached, Broquet noted. But there is also a "credit crunch coming from the 'B' investor side," he said. Once there is a certain level of funds on board, the banks that have close relationships with the company will follow. But if the deal is not oversubscribed, and the price goes too high, then GCI will wait until later to refinance. Credit Lyonnais was the lead on the deal that was pulled and the bank is working with GCI now to gauge the market. Broquet declined to comment on what cost would be acceptable and bankers at Credit Lyonnais declined comment.

Lyonnais was planning to launch a $325 million line for the company in the summer, but pulled the deal when WorldCom disclosed its massive fraud. Not only did the catastrophic losses in the telecom sector make market conditions tough, GCI had a receivables facility with WorldCom. The previous loan was to be split between a $200 million "B" loan and a $125 million revolver, with the "B" priced at LIBOR plus 3%. "We were caught in a downdraft and if this would have happened 10 days later we would have had the credit line," Broquet said. If the losses from the WorldCom debt are discounted, GCI would have had record results, he added.

Some buysiders and bankers were resolute that a new deal will be a tough sell, despite GCI's strong results in the last few quarters. "It will have to be offered at a premium. Look at Verizon Wireless, which went to LIBOR plus 500 before they yanked the deal," said one banker. A buysider, meanwhile, predicted a healthy spread and a significant discount based off relative value. "All cable and telecom is down. Investors can buy the bonds or bank debt at a discount, if they are not already full," he added. Broquet acknowledged the supply of heavily discounted paper in the market, but noted GCI has 3.5 times total leverage and has performed far better than other names in the sector. Being a part of the Alaskan economy has also helped. "We're counter-cyclical to the lower 48," he said. Another banker familiar with the company, added, "It's easy to lump them in the same basket [as telecom names] but they operate in Alaska, a unique market."

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