Consolidated Communications plans $935 million of term loan debt

By Sara Rosenberg

New York, Dec. 5 – Consolidated Communications Holdings Inc. has received a commitment for an $865 million seven-year senior secured incremental term loan and a $70 million 7.5-year senior unsecured term loan to help fund its acquisition of FairPoint Communications Inc., according to an 8-K filed with the Securities and Exchange Commission on Monday.

However, the company expects to promptly seek an amendment to its existing credit facility to allow for the $70 million to be incurred as a senior secured incremental term loan, which would increase the incremental senior secured term loan amount to $935 million and eliminate the unsecured term loan.

Pricing on the incremental term loan was outlined in the commitment letter as Libor plus 350 basis points with a 1% Libor floor and an original issue discount of 99.

The incremental term loan has a springing maturity of March 31, 2022 if Consolidated Communications’ 6˝% senior notes due 2022 are not repaid by that date.

Pricing on the unsecured term loan was described in the commitment letter as Libor plus 900 bps with a 1% Libor floor and an original issue discount of 98.

Morgan Stanley Senior Funding Inc., MUFG, TD Securities (USA) LLC and Mizuho Bank Ltd. are the lead banks on the new debt. Wells Fargo Bank is the administrative agent on the incremental term loan, and Morgan Stanley is the administrative agent on the unsecured term loan.

Under the agreement, FairPoint shareholders will receive a fixed exchange ratio of 0.73 share of Consolidated Communications common stock for each share of FairPoint common stock. The all-stock merger transaction is valued at about $1.5 billion, including debt.

Proceeds from the new debt and cash on hand or other sources of liquidity will be used to refinance FairPoint debt and pay fees and expenses associated with the transaction.

As of Sept. 30, FairPoint had net debt of around $887 million.

Pro forma for the transaction, the combined net debt of the combined company will be about $2.3 billion, which represents 3.8 times net leverage as of Sept. 30, compared to Consolidated Communications’ 4.4 times net leverage as of Sept. 30.

After closing, Consolidated Communications’ shareholders will own about 71.3% of the pro forma combined company and FairPoint’s shareholders will own 28.7%.

On a pro forma basis, the combined company generated more than $1.5 billion of revenue and $566 million of adjusted EBITDA before synergies, or $621 million after synergies, for the 12 months ended Sept. 30.

Closing is expected by mid-2017, subject to federal and state regulatory approvals, the approval of both companies’ shareholders and other customary conditions.

Consolidated Communications is a Mattoon, Ill.-based broadband and business communications provider. FairPoint is a Charlotte, N.C.-based provider of data, voice and video technologies.

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