Bank of America had to sweeten a $400 million "B" loan for Pegasus Media & Communications last week, with market players citing Pegasus' litigation issues with DIRECTV and satellite network rights as concerns. One investor said more accounts moved in to fill out the deal late last week. Officials from B of A declined to comment or confirm subscription levels. Joe Pooler, Pegasus' v.p. of finance and controller, also declined to comment.
After launching syndication of the $440 million credit less than two weeks ago, B of A pushed up pricing by the middle of last week to LIBOR plus 6%, with call protection of 102, 101 and an original issue discount of 1% also added, said bankers. The credit also has a 2% LIBOR floor that was a part of the originally proposed deal.
"[Pegasus is] more of a story credit," a second investor said, explaining that Pegasus' satellite divisions have issues that lenders must get comfortable with. "I don't think there was enough interest at LIBOR plus 500 [basis points]" to get B of A over the top, the first buysider added. Price talk began in the lower LIBOR plus 43/4-51/4% range the week before the concessions were added, he said.
"A big issue [of concern] is the litigation that is ongoing with DIRECTV," said Joel Luton, senior v.p. and director of research at APS Financial Corp. Pegasus is the nation's largest independent provider of DIRECTV, which is the largest direct broadcasting service in the U.S. Since 1999, DIRECTV and Pegasus have been filing a variety of suits and countersuits against each other, Luton explains in his research. The litigation's three central issues involve Pegasus' claim against DIRECTV for exclusive rights to retain full subscriber proceeds for premium channel (HBO and Showtime, for example) provision to its territories; a dispute over the DIRECTV contract term to which Pegasus believes is longer than DIRECTV does; and conflicting views of renewable business and channel rights once the contract expires.
The second investor noted that another major concern, which ties to the litigation issues, is that Pegasus does not own its own satellite network. So after a satellite dies, the rights go back to the cooperative owners of the satellite cable rights. Essentially, Pegasus could lose business and building new satellites is an expensive endeavor, he said.
Proceeds from the credit, which also includes a $40 million revolver, will go toward paying down Pegasus Media's existing debt, and to support letters of credit and working capital needs. A recently approved $100 million term loan at the Pegasus Satellite Communications level will also go toward these ends. Deutsche Bank and CIBC World Markets lead the existing credit for Bala Cynwyd, Pa.-based Pegasus.