RCN Corp. is believed to be going after an amendment that will allow the company to use cash to buy back its bonds, and that idea is not sitting well with term loan investors who would rather the cash be directed to them. "This is a very controversial amendment," noted one buysider. Jim Downing, an RCN investor relations spokesman, declined to comment on the amendment and the specifics could not be ascertained. Votes are due this Thursday and the company must receive 51% lender approval for the amendment.
The most logical move for RCN would be to make a principal payment on the bank debt so that lenders will in turn give the company the flexibility to use its cash to buy back its bonds, which are currently trading in the 30s, commented Chris Roberts, a director of research at Tejas Securities Group. Bank loan investors were hoping that they would be the recipients of cash, especially since the company recently received $245 million from the sale of sale of its central New Jersey cable systems to Patriot Media & Communications. Instead, the cash will be directed toward the bonds and the concessions to the bank group are said to be greater for those holding onto the company's unfunded revolver than those holding term loans. Under RCN's last amendment, the $187.5 million revolver cannot be drawn until March 2004, and even then the company must be able to achieve two consecutive quarters of $60 million in EBITDA.
Market players are mixed on the appropriate levels for RCN's bank debt as the company pursues the amendment. Between dealers and buysiders, the term loan "A" was quoted anywhere from the 80s to the 75-77 to the 72-75 range and the "B" was quoted anywhere from 69-74, last week. No trades could be confirmed due to the choppy levels. RCN currently has a $187.5 million revolver, a $187.5 million term loan "A" and a $375 million "B" piece. Two weeks ago, the term loan "B" was quoted in the 77-79 range and the "A" rested in the low 80s.
The amendment is said to also include some covenant tweaks. The company is currently in compliance with all of its covenants under the credit agreement. But according to Roberts' model, the company will only achieve $580 million for the trailing quarter in revenue rather than the $607 million required under its minimum consolidated revenue covenant by the end of the year..