Time Warner Telecom tapped Wachovia Securities and Lehman Brothers for a $700 million credit facility to finance its acquisition of Xspedius Communications as well as refinance $440 million of existing debt, according to a Securities and Exchange Commission filing. The deal consists of a $100 million senior secured revolver and a $600 million term loan "B." Pricing is LIBOR plus 2 1/2%.
Investors have generally been wary when it comes to financing competitive local exchange carriers in the past, citing poor Standard & Poor's recovery ratings and high leverage (CIN, 8/18). But some thought the Time Warner name would do well. "It's a CLEC that's survived, which is good it has done well," said an investor who previously owned the paper. "I think this name has had a pretty good following in the past something that if pricing is sane, it will get done."
S&P rated the loan B with a 3 recovery rating, assuming the acquisition is completed and all regulatory approvals are obtained. Moody's Investors Service assigned the facility a Ba2 rating. Pro forma for the new financing, Moody's expects the company's debt to EBTIDA leverage to increase slightly to 4.9 times from 4.5 times. TWT became a separate entity from Time Warner Cable in July 1998 and became TWT in May 1999 when it issued an initial public offering.
Fat pricing for the $390 million PAETEC credit, another CLEC, was the leading reason it was oversubscribed within the first week after its launch even though it received a 5 recovery rating, according to investors. Led by Merrill Lynch and Deutsche Bank, the $265 million first lien was priced at LIBOR plus 3 3/4% and the $125 million second lien was priced at LIBOR plus 7 3/4% with call protection of 103, 102, 101 (CIN, 5/19).
Time Warner Telecom is a Littleton, Colo.-based CLEC and Xspedius, based in O'Fallon, Mo., is a provider of telecommunications services to businesses across the U.S. A spokesman for TWT referred questions to the company's 8-K filing and declined further comment. An Xspedius spokesman referred calls to Paul Pierron, president and ceo, who did not return calls.