Adelphia Communications Corp.'s bank debt may have burned a vast swath of investors over the last few years, but an army of banks and loan investors will be asked to come back for more to finance a potential $8 billion exit financing. Bolstered by strong subscriber numbers and a general recovery in cable valuation levels, the company's debt is now considered all par paper by traders, and banks are lining up to pitch their services.
Deutsche Bank has its nose out in front for providing the financing, which will be a combination of bank and public debt. "[Deutsche Bank] has actively pursued the opportunity to provide exit financing and has developed a preliminary outline of potential terms and conditions, which is non-binding and requires significant negotiation," a filing with the bankruptcy court says. J.P. Morgan and Citibank are the leads on Adelphia's debtor-in-possession financing.
"There are a limited number of institutions that have the capability to do this size transaction," an Adelphia spokesman stated. "Deutsche [Bank] is not in the agent group for either pre-petition or DIP loans," a spokeswoman said, adding that the new arrangement does not mean Deutsche Bank will be providing the exit financing. But according to the filing, Adelphia believes "that the best way to initiate exit financing discussions is with an institution that is not a member of the current agent group and thus already engrossed in these cases."
"I think at the end of the day it's a large enough number so that they're going to club the deal up and join up major institutions to co-underwrite," said Mitchell Drucker, national restructuring manager for CIT Group. "There will probably be at least two co-lead arrangers, probably a second tier of co-underwriters, and perhaps even a third tier if the senior facility is in the $8 billion range."
One loan investor said the company is aiming to come out with the financing this summer. "By consolidating all loans under one umbrella and repaying all of the existing loans via exit financing, they don't have to go through intercreditor arguments," he said. "It sounds like a reasonable process. That's about the only way for them to exit quickly." Drucker agreed that it is best that the company is doing it all together. "There were some issues in the DIP where the loans were separate and distinct, which structurally made it somewhat difficult for a number of lenders to get comfortable with that. You had to evaluate six different companies on a stand-alone basis," he said. "They still got it done and sold it down but it was the type of facility that wasn't for everybody."
A Deutsche Bank spokesman declined comment. A J.P. Morgan spokesman said, "We're many months away from determining what the exit financing will be and what it will look like." A Citi spokeswoman declined comment.