Pinnacle On Hold As Investors Balk At Tower Exposure
Fortress Investment Group and Greenhill Capital Partners had to return to the drawing board last week as the two equity sponsors realized the market would not accept more tower exposure under the terms of Pinnacle Towers' proposed new credit facility. Deutsche Bank and Bank of America were preparing a $340 million credit facility to back Pinnacle's exit from bankruptcy, but a punishing secondary market for tower names and specific concerns over Pinnacle are complicating matters.
Potential investors were scoffing the pre-market price on the loan. "There is not a firm no," said William Freeman, cfo of Pinnacle, about the reaction from investors. "But, at this point, the deal as currently structured could be prohibitively expensive" for sponsors Fortress and Greenhill. The two firms are chipping in with a $205 million equity investment as part of the exit plan.
Freeman concurred with investors that borrowing conditions for companies associated with the telecommunications industry are at fault. He declined to comment on what the threshold for getting the deal through the market could be. The $300 million "B" loan was being discussed at LIBOR plus 4%, but investors said a massive discount would be required. "You can buy Crown Castle International in the low 90s, and that is the best of the credits," said one investor. American Tower and SpectraSite Holdings are in the mid-80s, he added.
"There is not enough demand for the Pinnacle deal," another investor said. "We are uncomfortable still with the debt levels and the fundamentals of the sector." The debt reduction would be the big benefit of the reorganization plan, Freeman rejoined. "We are going from $900 million to $300 million, which is four times EBITDA," he added.
Freeman said Pinnacle is "working with the banks and keeping the current bank group informed." A condition of the reorganization plan is that the conditions of the financing are not materially different from those set out in the commitment letter. If the closing contemplated by the purchase agreement is not completed before Aug. 20, the votes in favor of the plan could be withdrawn, Freeman noted. The existing bank debt is being bid in the 85-90 range--significantly off recent levels, which were inching towards par.