The senior secured lenders to Pegasus Communications are waiting to see whether the cable company's bank debt will be paid down at a premium if DirectTV's $875 million purchase goes through. The satellite giant is expected to pay off Pegasus' bank debt at par, but with the $300 million "D" tranche having 102 call protection and back interest possible on the "B" loan, lenders are hopeful for a little more juice.
"It is definitely a question of where the debt is going to be taken out," a trader said. Pegasus will at least be taken out at par because there is significant value in DirectTV's offer for the company's subscribers, he added. Pegasus' term loan "D" carries call protection at 102, but loan players are not banking on this. The call protection is dubious because it is unprecedented to get a call premium in the bankruptcy court, another trader added. "In the end the court is going to decide par is enough," another dealer noted.
The "B" piece does not have call protection but it could be paid above par, a trader said. The paper is worth par but there is a lot of back interest and fees that were deferred and need to be paid, he noted. The principal amount will be paid in full, but the accrued interest and fees are not expressed as a percentage of par. The market infers what is owed and expresses it as a percentage of par plus interest and fees, the trader explained. If you factor the interest and fees the amount would rise above par, he said. The bankruptcy court will have to decide on the settlement amount. The court will have to interfere to make sure that excess value is actually due to the banks, he added.
Pegasus' $300 million "D" loan inched up to the 99 1/2-100 level, while the "B" piece traded up around par. Bank of America leads the debt. One source said the "D" loan is priced at LIBOR plus 7% while the incremental loan is priced at LIBOR plus 3 1/2%. A month ago Pegasus' "D" piece had inched up to the 99 1/4-99 3/4 range after the company and its subsidiaries filed for Chapter 11 protection.
DirectTV's offer, which has been approved by a committee of Pegasus' creditors, still needs the consent of the bankruptcy court. The companies are trying to close the transaction by mid-September. "They said four to six weeks but I don't see it happening before a number of months. Everything is going to be a negotiation," a buysider said. A Pegasus investor relations official did not return calls.