Rural CLEC Levers-Up For TXU Acquisition

Consolidated Communications, a rural competitive local exchange carrier provider, will significantly raise its leverage to fund the $524 million acquisition of TXU Communications Ventures. In addition, there is vulnerability to heightened wireless or cable telephony in its more densely populated rural markets and relatively flat top-line growth, according to Moody's Investors Service.

Senior debt of approximately $427 million, alongside $240 million of bonds and an $89 million contribution from equity investors in Homebase Acquisition, will back the acquisition of TXU and repay existing bank debt. Homebase is the parent company of Consolidated Communications Illinois Holdings and Consolidated Communications Texas Holdings.

Moody's has given the bank debt a B1 rating. Credit Suisse First Boston and Citigroup are leading the deal, consisting of a $122 million "A" loan, a $275 million "B" piece and a $30 million undrawn revolver. Price talk is LIBOR plus 21/2% on the pro rata and LIBOR plus 23/4% on the institutional tranche. A Consolidated spokeswoman said the challenges are minimal due to limited competition and revenue growth opportunities based on population growth in the Texas market, increasing broadband penetration and opportunities to bundle up services.

The acquisition will increase access lines for Consolidated to 262,000. These lines are concentrated in Illinois and Texas. Other positive factors include the relatively stable revenue of the telephone operations, a supportive regulatory environment and the experienced management of the company, Standard & Poor's notes. Annual capital expenditures are anticipated to be moderate in the $35 million range because the network upgrades have been completed to 100% digital and greater than 80% of the network is DSL capable, S&P adds.