Allegiance Telecom has to reduce its $1.275 billion in debt to $660 million by April 30, 2003 in conjunction with a recent amendment to its credit agreement. While some type of debt to equity swap could be on the agenda, Thomas Lord, Allegiance Telecom cfo, declined to reveal his cards at this time. There are no structural limitations for how the company can reduce its debt, explained Lord. Meanwhile, Edward Rose, president of Cardinal Investment Co., has reportedly bought 20% of Allegiance's bank debt and has been buying up some of the company's $623 million in bonds as well.
The market for the bank debt is currently quoted with a bid/ask spread of 36/40, according to LoanX, but it could not be determined at what levels Rose bought into the debt, as he did not return calls. Reportedly, one analyst has suggested Rose is more committed to a debt-for-equity swap than the lenders he replaced.
The company has already been forced to reduce the capacity of its $500 million credit facility by $15 million after three lenders, whose identities were not disclosed, refused to fund their portions of the revolver when Allegiance requested a draw down in June. While Allegiance has conceded to this refusal, it has agreed to reduce the outstanding amount of its credit by $25 million across the board if the "defaulting lenders" fund their portion of the draw-down, explained Lord, declining to comment further on the matter.
Allegiance's amendment also waives all existing covenants until April 30, 2003, as the company looks to change its focus from rapid revenue growth to cash conservation, said Lord. The credit facility comprises a $350 million revolver and a $150 million "A" term loan before the potential $15 million or $25 million reduction. Both tranches were originally priced at LIBOR plus 21/ 4% but were repriced to LIBOR plus 31/ 2% with the new waiver. The credit was initially led by TD Securities, but as the Canadian bank has significantly scaled back on loans, specifically in key industries such as telecom, General Electric Capital has stepped in to fill the administration agent gap. A spokesman from TD Securities declined to comment on the matter.