Telecom Ramblings

In July, back when the credit markets were merely horrible, Vonage announced a financing package to allow it to refinance its debt that comes due in December, and even then it was a brutal refinancing.  Well, today Vonage announced the package has been renegotiated.  Why?  Well, I’m guessing it is because the original package ‘contemplated’ raising $30M from other parties to make it to $220M total, and that obviously didn’t happen.  Given the state of the markets, you know the new package isn’t going to be much of an improvement.

In order to reach $220M, they rejiggered the terms such that the first lien is $130.3M, the second is $72M and no longer convertible.  Sounds great so far, but Silver Point is now also providing $18M in the form of a convertible at a price of $0.29, which of course is a 66% haircut from yesterday’s close and amounts to 62M shares all by itself.  That’s right, to raise a mere $18M, Vonage is now diluting its stock by 40%.  The full-ratchet anti-dilution clause has been scaled back to a less drastic formula, but since the price is now $0.29 there was little point anyway.  The interest rates on the first and second liens are not specified, and the final terms are apparently *still* being negotiated.

With this package, Vonage hopes to survive the winter.  Given the financial crisis out there, I suppose that would be a worthy accomplishment – but it will serve as a warning to anyone who *needs* to access the credit markets right now.  It ain’t pretty.