US LEC has preemptively restructured the amortization payments on its $150 million credit led by General Electric Capital Corp. and Wachovia Bank to avoid an anticipated funding gap. As a super-regional telecom company operating in a capital-intensive market, the company took out the debt to build out its networks. However, unlike many other telecom companies, US LEC was able to negotiate a deal with its banks to give the company room to grow and achieve free cash flow, rather than have to encounter a liquidity crisis situation in the future, explained Michael Robinson, US LEC's cfo.
Now $30 million of the amortization payments on US LEC's term loan and $25 million in amortization payments on its revolver have been pushed out to 2005-2006. Robinson explained that instead of making a series of payments totaling $19 million in 2003, US LEC does not have any amortization due in 2003 and instead of payments equaling $25 million in 2004, the company will now make payments of $10 million. "The company will have room to grow and will be in a better position to more comfortably deal with its amortization," noted Robinson. US LEC originally had a $125 million term loan, but this has been reduced to $103 million.
In addition, US LEC is still paying cash interest and there is no reduction in the principal payments that the company will make to lenders. "It's not just a financial restructuring. It's a re-up. [The lenders] are helping us to succeed in a very difficult market," Robinson said. He explained the company's business model convinced its bank group. "Our track record gave them enough evidence that we're on a path to success." While the pricing on the loan did not change, both tranches are still set at LIBOR plus 4%, the Charlotte, N.C.-based company has committed to paying an additional 10% premium on any deferred amount outstanding.