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CommScope Bank Deal Yanked; Company To Scale Back Investment

16 Nov 2001

The $275 million bank deal for CommScope led by CIBC World Markets and Citibank has been nixed after investors refused to bite on the richly priced and discounted "B" term loan and the company reworked its' acquisition plans. Phil Armstrong, director of investor relations for CommScope, would not confirm the bank deal has been cancelled, but said difficulties in the financing market were among a list of reasons why CommScope is scaling back its investment in Lucent Technologies fiber-optic cable business. As part of the new joint venture CommScope is investing $203 million in cash and equity to buy the business and Furukawa Electric will pay over $2 billion in cash. A source familiar with the deal said the banks may come back with a rejiggered credit.

Armstrong said CommScope is investing less than half of the planned $650 million in the Lucent business, and this investment will substantially be equity rather than bank debt. Calls to CIBC World Markets syndication officials were not returned. Dan Noonan, a Citibank spokesman, could not provide comment by press time.

Explaining the scaling back, Armstrong noted, "The bank meeting was initially planned for Sept. 13." Additionally, there is an uncertain economic environment and a severe downturn in the telecommunications industry. CommScope has had a 30% drop in sales for the third quarter. He declined all further comment on the bank deal. Andrew Watt, an analyst at Standard & Poor's, said once Corning announced it would close factories, the market got jittery. This is an indicator of softening demand in the sector, he said. He did not know whether the credit, assigned a double-B+ rating had been pulled.

One banker said CommScope is a good credit, but buysiders and bankers agreed the deal did not get off the ground as the telecom market is getting hammered. One buysider said, "Everybody is full of that industry," adding there is already a lot of similar paper out trading at a discount. Pricing on the deal flexed up to LIBOR plus 5% on the $225 million "B" term loan after starting out at a more conservative LIBOR plus 3 1/2%. Call premiums at 103, 102, 101 were thrown in as well as hefty up-front fees. Being sold at a cut price 97 1/2, one analyst noted the if the company paid back in the first year during the 103 call premium period, the yield would reach LIBOR plus 10%. The investor said call protection and discounts cannot totally compensate credit risk, adding "look at Winstar Communications, a deal that struggled in syndication, was sold at a discount, but now trades at about 4."

16 Nov 2001