FairPoint adds Libor floor; Charter slides on new debt, CFO departure; LCDX stronger

By Sara Rosenberg

New York, March 11 - FairPoint Communications Inc. added a Libor floor to its term loan B on Tuesday morning, which has already seen some good traction in terms of syndication but is hoping to see even more on this addition.

In other news, Charter Communications Operating LLC's term loan B headed lower on news that the company is getting additional bank and bond debt, and that its chief financial officer has resigned.

Also in trading, LCDX 9 moved higher and cash had a positive tone to it, as the stock market rallied.

FairPoint came out with some changes to its credit facility early on in the session, including adding a Libor floor to the term loan B and modifying some more technical aspects of the credit agreement, according to a market source.

The $1.13 billion seven-year term loan B now has a 3% Libor floor for three years, the source said. Price talk on the term loan B remains at Libor plus 275 basis points, with an original issue discount of 93, and call protection of 102 in year one and 101 in year two against optional prepayments.

"Just under half way there as of the end of business yesterday," the source said regarding the term loan B syndication. "Suspect with the addition of the Libor floor, orders should pick up steam today."

FairPoint's credit facility also includes a $200 million six-year revolver talked at Libor plus 275 bps, a $500 million six-year term loan A talked at Libor plus 250 bps and a $200 million one-year delayed-draw term loan, with seven-year final maturity, talked at Libor plus 275 bps.

The revolver, term loan A and delayed-draw term loan are being marketed together.

There are two tiers of upfront fees towards the revolver, term loan A and delayed-draw term loan. Senior managing agents committing $60 million will get an upfront fee of 5%, while managing agents committing $40 million will get an upfront fee of 4%.

The revolver has a 37.5 bps unused fee and the delayed-draw term loan has a 75 bps unused for six months, stepping up to 125 bps thereafter.

The delayed-draw term loan carries call protection of 102 in year one and 101 in year two against optional prepayments.

In addition to the term loan B Libor floor, FairPoint announced some changes to the entire $2.03 billion senior secured credit facility agreement (Ba3/BB+/BB+) on Tuesday, such as making improvements to the excess cash flow sweep that aligns it with regulatory stipulations, the source continued.

Furthermore, change-of-control language was modified so that it's now a 95% lender issue as opposed to a majority lender issue, the source remarked.

Change-of-control language is something that investors have been focused on recently since, in this rocky market environment, some companies that are being bought out have or are attempting to leave their credit facilities in place as opposed to getting new debt and paying people down, a second source explained.

For example, Cumulus Media Inc. is currently in talks with lenders under its existing credit facility regarding an amendment that would allow it to keep the bank debt in place following a buyout by management and Merrill Lynch Global Private Equity by revising the change-of-control definition.

By amending the credit facility, Cumulus, an Atlanta-based radio company, would not use the $1.02 billion senior secured credit facility commitment that was obtained in 2007 from Merrill Lynch and existing lenders would not get paid down at par as they once hoped.

Getting back to FairPoint, proceeds from the credit facility will be used to help fund the merger with Verizon Communications Inc.'s wireline operations in Maine, New Hampshire and Vermont.

In the merger, FairPoint will issue about 53.8 million of its common shares to be distributed in a tax-free Reverse Morris Trust transaction to the shareholders of Verizon as well as assume roughly $1.7 billion of debt. The transaction will give FairPoint's shareholders 40% ownership and Verizon's shareholders 60% ownership of the combined company.

Other financing will come from $540 million of senior unsecured notes.

FairPoint currently expects that it will borrow at least $150 million under the delayed-draw term loan during the one-year delayed-draw period to fund certain capital expenditures and other expenses associated with the merger.

Financial covenants under the credit facility include a minimum cash interest coverage ratio of 2.50 to 1.00 and a maximum total leverage ratio of 5.50 to 1.00.

Lehman Brothers, Morgan Stanley, Bank of America, Deutsche Bank, Wachovia, Merrill Lynch and CoBank are the lead banks on the deal, with Lehman the left lead.

Commitments from lenders towards the credit facility are due on Feb. 18.

The structure that the deal launched with is slightly different than what the company had previously outlined in filings with the SEC. Those filings had the facility comprised of a $200 million revolver, an up to $200 million delayed-draw term loan and an up to $1.68 billion term loan B.

Pro forma as of Dec. 31, the combined company's senior secured debt to EBITDA is 2.5 times, total debt to EBITDA is 3.4 times, net debt to EBITDA is 3.3 times, EBITDA to interest expense is 3.6 times and EBITDA minus capital expenditures to interest expense is 2.5 times.

FairPoint is a Charlotte, N.C., provider of communications services to rural communities.

Charter dips on debt, CFO news

Moving to the secondary, Charter Communications's existing term loan B traded down during Tuesday's market hours following announcements of new debt deals and management changes, according to traders.

The term loan B was quoted at 84 bid, 85 offered, down from 85¼ bid, 86¼ offered on Monday, traders said.

On Tuesday morning, Charter held a conference call to launch a $275 million incremental term loan (B1) due March 6, 2014 and disclosed that it plans to sell $500 million of second-lien notes.

The term loan, which was marketed in one day, is talked at Libor plus 500 bps, with a 3.5% Libor floor, market sources said. The original issue discount on the loan is expected to firm up at 96, the high end of initial guidance of 96 to 97.

By late afternoon, accounts were being told that the term loan will be upsized to $400 million to $500 million as a result of strong demand.

Proceeds from the term loan and the bonds will be used to pay down revolver borrowings and for general corporate purposes.

JPMorgan and Citigroup are the lead banks on the term loan that is expected to close shortly after completion of the bond deal.

After giving effect to term loan and the notes, the company expects that cash on hand, cash flows from operating activities, and the amounts available under the credit facility will be adequate to fund projected cash needs, including scheduled maturities, through 2009.

However, the company said that it does not expect to have sufficient funds to finance projected cash needs in 2010, primarily as a result of the $2.2 billion of senior notes maturing in September 2010, and thereafter.

Charter warned in an 8-K filing that an inability to access additional sources of liquidity to fund cash needs in 2010 or thereafter, or to refinance or otherwise fund the repayment of the senior notes, could adversely affect growth, financial condition, results of operations, and the ability to make debt payments.

The company went on to say that a situation in which additional funds are not obtained for 2010 and thereafter could cause a bankruptcy filing to take place.

Also on Tuesday, Charter revealed that Jeffrey T. Fisher, executive vice president and chief financial officer, has indicated he intends to resign effective April 4.

Eloise Schmitz will be named as interim chief financial officer, in addition to her regular duties as senior vice president, strategic planning.

Charter is a St. Louis-based broadband communications company and cable operator.

LCDX rises

LCDX 9 gained some ground in trading, and the cash market "felt generally better" in light activity, spurred on by the improvement in equities, according to a trader.

The index was quoted at 92.30 bid, 92.50 offered, up from 91.55 bid, 91.70 offered, the trader said.

As for stocks, Nasdaq closed up 86.42 points, or 3.98%, Dow Jones Industrial Average closed up 416.66 points, or 3.55%, S&P 500 closed up 47.28 points, or 3.71%, and NYSE closed up 308.31 points, or 3.61%.

Boosting equities on Tuesday was the announcement by the Federal Reserve of an expansion of its securities lending program.

Under the new Term Securities Lending Facility, the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days, rather than overnight, as in the existing program.

These Treasury securities will be secured by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities, and non-agency AAA/Aaa-rated private-label residential mortgage-backed securities.

The program is expected to promote liquidity in the financing markets for Treasury and other collateral and foster the functioning of financial markets more generally.

Securities will be made available through an auction process, with auctions held on a weekly basis, beginning on March 27.

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