Atlantic term B subscribed by bank meeting start; SBA sees good investor reception

By Sara Rosenberg

New York, Jan. 13 - Atlantic Broadband Finance LLC's term loan B was already subscribed as the syndicate was walking into the Tuesday morning bank meeting that would officially kick off the deal. Meanwhile, SBA Senior Finance Inc.'s deal, which also launched Tuesday morning, is said to be going relatively well as commitments were said to be flowing into the books throughout the day.

Atlantic Broadband's $395 million facility contains a $275 million term loan B with price talk of Libor plus 375 basis points, a $90 million revolver talked at Libor plus 325 basis points and a $30 million term loan A talked at Libor plus 325 basis points, the source said.

"Apparently it's going very well," the source said. "As they were headed into the meeting they already had enough orders on the B."

Merrill Lynch is the sole lead bank on the deal.

Atlantic Broadband was formed by ABRY Partners, a Boston private equity fund, to acquire and operate upgraded cable television systems offering video and high-speed data services to residential and commercial customers.

Proceeds, combined with equity financing, will be used to help finance Atlantic's acquisition of certain cable systems from Charter Communications Inc. for $765 million. In addition to ABRY, equity financing was provided by its long-term cable investment partner, Oak Hill Capital Partners LP, as well as other minority equity investors.

On Tuesday, Moody's Investors Service assigned its B2 rating to the credit facility with a stable outlook.

"The ratings broadly reflect concerns about execution risk, scale, and competition facing the new management team of the former Charter Communications systems, as well as the high level of financial leverage incurred to acquire the company's assets, balanced against the good intrinsic asset value underlying the debt and growing cash flows generated by the company's predominantly upgraded cable systems," Moody's explained.

"Initially debt will be more than 7.0x EBITDA and coverage of interest expense will approximate 2.0x. The company's leverage is even higher (about 8.0x) in consideration of the parent company 'senior equity' being raised, which carries debt-like characteristics including a fixed maturity date and cash redemption provision (and notwithstanding its PIK nature and high dividend yield).

"The company will depend upon fairly strong EBITDA growth after 2004 to drive delevering, with material absolute reduction in debt not coming until several years out."

Also on Tuesday, Standard & Poor's assigned its B rating and a recovery rating of 3 (indicating expected 50% to 80% recovery in the event of default) to the credit facility with a negative outlook.

"Ratings reflect high financial risk from largely debt-financed cable TV system acquisitions, a high cost capital structure with a growing preferred stock obligation, challenges the company may face in stabilizing negative subscriber trends in light of heavy competition from direct-to-home (DTH) satellite TV operators, cost pressure from rising programming costs, and minimal discretionary cash flow despite moderate additional capital spending needed to complete system upgrades," S&P said.

"Tempering factors include the company's position as the dominant provider of pay-TV services in its markets, potential growth from high-speed data and enhanced video services, and management's previous experience operating cable TV systems," S&P added.

SBA Senior Finance Inc.'s proposed $350 million senior secured credit facility consists of a $75 million revolver due July 2008 with an interest rate of Libor plus 375 basis points and an upfront fee of 200 basis points for any sized commitment, and a $275 million term loan B due October 2008 with an interest rate of Libor plus 400 basis points and an offer price of par.

"It saw pretty good reception. You don't see that much 400 basis points margin paper out there these days. Spread is certainly what's causing some interest out there. [It's] appealing to the hedge fund market and traditional market. [There's also a] pretty tight structure. It has hard asset security and it's structured like a holdco, opco situation. Looks like it's going to go very well," a market professional said.

Furthermore, according to a company news release, the revolver is already mostly spoken for by Lehman Commercial Paper Inc. and Deutsche Bank Trust Company Americas.

Commitments are due on Jan. 23, and the syndicate is looking to close on the deal by the end of the month.

Lehman and Deutsche Bank are the lead banks on the facility.

Security is a pledge of all the assets of SBA and its subsidiaries.

Proceeds will be used to repay borrowings under SBA's existing $195 million senior secured credit facility and for general corporate purposes, including calling the remaining $65.7 million of the company's 12% senior discount notes on March 1.

On Tuesday, S&P announced that the launch of SBA's credit facility has no immediate impact on the company's CCC rating or developing outlook.

"Ratings on SBA Communications reflect the company's aggressive leverage (which was about 14.3x debt to annualized EBITDA for the quarter ended in September 2003) and limited liquidity, which could be an issue in the second half of 2004 given limited free cash flow prospects and significant debt amortization relating to its existing credit facility," S&P said.

"If SBA Communications is able to refinance the existing credit facility with the proposed bank facility, the concern over liquidity, as embodied in the developing outlook, could be significantly assuaged," the rating agency added.

SBA Senior Finance is a wholly-owned subsidiary of SBA Communications Corp., a Boca Raton, Fla., owner and operator of wireless communications infrastructure.

Medco stays at 101 plus levels

Medco Health Solutions Inc.'s bank debt remained at 101¼ bid, 101¾ offered despite late Monday news that a multi-year agreement was reached to provide administrative support services for the pharmaceutical benefit management enterprises of UnitedHealthcare and other businesses of UnitedHealth Group.

The new agreement, which is effective Jan. 1, has an initial term of five years ending Dec. 31, 2008 and, at UnitedHealthcare's option, may be extended for an additional three years.

"This was not unexpected. It would have been disastrous if it hadn't happened. Then the paper would have dropped to like 50. But now there's no change," a trader said.

Medco is a Franklin Lakes, N.J., pharmacy benefits manager.

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