Level 3 Communications, the IP-based communications solutions provider, continues to tap the capital markets as it seeks to refinance its substantial debt burden. According a research note from ratings agency Standard & Poor’s, Level 3 is seeking to…
Level 3 Communications, the IP-based communications solutions provider, continues to tap the capital markets as it seeks to refinance its substantial debt burden. According a research note from ratings agency Standard & Poor’s, Level 3 is seeking to raise approximately US$1.415bn through a dual tranche credit facility.
Via its subsidiary Level 3 Financing, the company is allegedly in the market with a US$1.115bn seven-year senior term loan B and a US$300m 3.5-year senior term loan B.
Level 3 said it had no comment on the potential financing.
As with other recent Level 3 financings, proceeds are expected to be used to refinance the company’s existing debt, in this case its US$1.4bn term loan A that matures in 2014.
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.
The company is due to close 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 US$172m of outstanding 15% convertible senior notes, which mature in 2013.
BofA Merrill Lynch, Citigroup and Morgan Stanley are lead arrangers on that deal and have been the company’s relationship banks on all its previous refinancings.
In its summary of the planned financing, S&P 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 help to delever Level 3 given Global Crossing’s lower debt level and significant free cash flow.