Level 3 Communications, the IP-based communications solutions provider, continues to tap the capital markets as it seeks to refinance its substantial debt burden.
Via its subsidiary Level 3 Financing, the company is in the process of raise approximately…
Level 3 Communications, the IP-based communications solutions provider, continues to tap the capital markets as it seeks to refinance its substantial debt burden.
Via its subsidiary Level 3 Financing, the company is in the process of raise approximately US$1.415bn through a dual tranche senior secured credit facility, split between a US$815m seven-year term loan B and a US$600m 4-year senior term loan B, and US$775m in ten-year senior notes.
The US$815m term loan bears an interest of 375bp over Libor, with a Libor floor of 1.5%, and priced at 99%. The US$600m term loan will bear interest at 325bp over Libor and priced at 99.5%. The transaction is expected to be completed in 6 August.
The senior notes, which were significantly upsized from the initially planned US$400m offering, priced at par to yield 7%. Citigroup and BofA Merrill Lynch are lead arrangers on the issue with Morgan Stanley, Credit Suisse, Deutsche Bank and JP Morgan joint bookrunners.
As with other recent Level 3 financings, proceeds are to be used to refinance the company’s existing debt. In this case, the loans will be used to repay the US$1.4bn term loan A that matures in 2014, while the notes will be used to redeem a portion of its US$700m outstanding 8.75% senior notes due 2017.
Level 3 has a debt tower of approximately US$2.5bn of debt that is due in 2014 and has around US$8.55bn in total debt.
Level 3 added that it also has in place two interest rate swap agreements maturing in early 2014 that effectively hedge the interest rate on a portion of the Term Loan A that it is seeking to refinance. As a result of the refi, Level 3 expects that the swap agreements would become ‘ineffective’ under generally accepted accounting principles and that it would recognize a non-cash loss effective on the closing of approximately US$66m in Q3 2012.
The company closed a US$300m offering of new 7-year 8.875% senior unsecured notes at the beginning of August with the proceeds being used to replace its US$172m outstanding of 15% convertible senior notes, which mature in 2013.
Again BofA Merrill Lynch, Citigroup and Morgan Stanley were lead arrangers on that deal and have been the company’s relationship banks on all its previous refinancings.
In a research note, ratings agency Standard & Poor’s said: “Although we expect a small increase in borrowing costs compared to the existing term loan A, the transaction does not change our assessment of the company’s financial risk profile as ‘highly leveraged’. We expect debt leverage, including our adjustments, mostly for operating leases, to improve to an area above 6x, from recent levels of over 8x.”
Much of the improvement in Level 3’s leverage comes from its US$3bn acquisition of Global Crossing in October 2011. While that deal was funded with a US$1.1bn bridge loan, which was subsequently replaced with US$1.2bn of senior notes, the acquisition actually helped to delever Level 3 given Global Crossing’s lower debt level and significant free cash flow.
