Last month, internet backbone provider Level 3 Communications (LVLT) announced a refinancing initiative in which the company would sell $400M of new 15% convertible notes and tender for its 2009 and 2010 debt, but the cash being raised was conditional on some 50% of the debt to be tendered. The credit crisis forced the company and its backers to take action, and they did – but there was a wide range of possible outcomes, with one of the most commonly voice being that they would get nothing and go back to the drawing board. Well, not quite.
They didn’t make it to that 50% by the deadline, so they just adjusted the offer. And you can see that the terms of the offer were very fungible, Level 3 and its backers probably intended from the very beginning to take whatever they could get from this maneuver, there was never any chance of a collapse of the deal – the only question was how much they could lure in.
|2.875% Converts due 2010||$354.5M||$163.8||$162M|
|6% Converts due 2010||$481.7M||$174.4||$173M|
|6% Converts due 2009||$305.1M||$137.5||$135M|
As you can see, the goalposts were very precisely repositioned so that the field goal will be good, the sellers of the new debt have signed off on the change, and the tender was extended for another 7 days. Why extended? Well given the doubt that this deal would go through there were aparently many potential participants that sold their bonds in the market rather than tender them, and the bonds have traded below the tender price the entire month. Now that it is clear it will go through, why not see if they can shake loose any more debt if it is a sure thing? As usual, Level 3 is showing that whether or not it ever makes money in bandwidth, it surely knows how to dance the refi two-step.
If nothing new happens in a week, LVLT would seem to raise $373M in new 15% convertible notes, and pay about $360M to buy back $470M of 2009 and 2010 debt. By my count, that would leave them with maturities of $170M in 2009 and about $500 in 2010. With a current cash and equivalents balance of $583M and operations supposedly to generate positive free cash flow in 2009, the hill doesn’t look impossible anymore. While they surely would prefer to refinance it all, it seems possible they *could* pay it off if they had too. And then there’s 2011, but let’s not go there!