Allegiance Telecom drew down $350 million of its $500 million credit facility on Sept. 13, hoping to cash in on favorable rates. Thomas Lord, cfo and executive v.p., explained that the company determined interest rates were at their best in 20 years. The drawdown just happened to coincide with the World Trade Center attack on Sept. 11, but the transaction managed to go through two days later.
Lord explained that the company had never tapped its $500 million bank deal prior to the drawdown. "I have a real aversion to debt," he said. "How much bank debt you take on is a big concern. If you have a steak at a restaurant one night a week, you're fine. If you have it every night, you have blocked arteries. That's why I like very diverse capital." However, Lord charted the interest rates over the past 20 years and figured there would be no better time than now to access the cash. "I remember sitting in a meeting [in Aug.] and saying that we don't know what will happen to the market, that we don't want to take our chances if someone goes crazy. The best way to alleviate your concern is to access the cash," he said.
The pricing spread is LIBOR plus 31/ 4%. Goldman Sachs, TD Securities, FleetBoston, and Morgan Stanley are the lead arrangers in the 27-bank syndicate. "I've had relationships with them that go back many moons. I never pick banks on pricing. Anybody who does that is a moron," said Lord, referring to how pricing can change according to market fluctuations. The deal breaks down into a $150 million term loan and a $200 million revolver. Lord says he chose not to tap the whole facility because he didn't need all the money. The tapped money is going into treasury bills and will be cash used for company operations. The company had relied on bonds and equity for financing.
The Dallas-based company is an integrated communications provider that offers local, long-distance high speed Internet access to small and medium companies.