Level 3 Pulls Another $220M Out of its Hat

April 6th, 2009 by · 6 Comments

In yet another financial transaction that few thought possible in this environment, Level 3 Communications (NYSE:LVLT, news, filings) has waved its magic wand and added $214M to its coffers.  The money comes via a second tranche for its senior secured credit facility, the balance of which previously stood at $1.4B and will now be $1.62B.  The interest will be at LIBOR+8.5% with a floor of 11.5%.  When interest rates go up, as they surely will, this rate will of course not look so cheap.  However, the money will help to further reduce the pressure on the company from debt maturities over the next few years. 

I had expected them to make another move the moment a window opened, and so they did.  The size of the senior secured credit facility has always been tied to EBITDA levels.  The company's focus on reducing SG&A has been reaping rewards in that arena, and no doubt that is how they have managed to do this despite the tight credit markets.  It's important also because it brings into focus the possibility that the company may actually not need more help.   As thejuice iterated in his model, they began the year with $769M in unrestricted cash, with $181M due in September and another $513M by July of 2010.  Left over would be a mere $75M plus whatever they generate between now and then, and the next hurdles of $567M in 2011 and $326 in 2012 would loom large even with solidly positive cash flow the whole time.  This $220M makes those coming walls look easier to climb solo.

But I doubt they're done yet.  Level 3 won't want to just sit on this $220M, they'll try to make it count.  My guess is that they'll look to tender for some of the 2011 and 2012 debt, to take it out at a nice discount.  They couldn't do that until now because they needed all their current cash for the 2009 and 2010 debt plus working capital. The other thing they could do with money, of course, is M&A.  But the M&A they really want to do would be Qwest longhaul or Global Crossing, and this money would be a drop in the bucket for such deals.   So I think their plan will be focused on refinancing for now.  Congrats to CFO Sunit Patel and his team, I get the feeling they have been turning over an awful lot of stones all winter.

Categories: Financials

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6 Comments So Far


  • Anonymous says:

    I really do hope that they will generate positive FCF for 2009 and on. I am counting on the stock going to 5 again to take the family to a decent vacation. We could really use one right now.

  • The_Highwayman says:

    When will LVLT actually grow something on their own?

    Honestly, how many times will Crowe state they are fully funded? Only to go out and get more capital, dilute and cost cut his way to where they think they can achieve growth?

    sooner or later strong and sustaining organic growth has to be evident. PERIOD!

    it is always soemthing with these guys other than what really matters…..going out and growing from operations.

    If free markets were alvie today there is no question this company would have been already gone.

    grow or die, imho they continue to just sit on the hamster wheel and hoenstly think if they cut costs enough and play shell games with thier obligations it will happen.

    sorry, but this is just another rinse and repeat episode of “As LVLT turns”

    show me honest to goodness growth…

    imho this patient is dead they just refuse to lay down the paddles and call the time

  • Parkite says:

    Highwayman – You are on a roll today! Totally agree.

    And that debt is WAY expensive. Wait until inflation kicks in from the loose monetary policy and the Feds have to begin raising s/t rates. I just can’t imagine operating a business the way L3 does. They are their own worst enemy.

  • jeremy drane says:

    they will hedge the debt to make it fixed, im not sure how many points that will cost but it will be worth it. as to uses of the funds, they got a window and used it if this is for M&A i would be shocked! i think they wanted some breathing room. next to go might be receiveables!

  • The_Highwayman says:

    jeremy,

    first,
    thanks for all your hard work and hoping a operations guy understand numbers, etc better….

    if we see receivables start to go or get cleaned up and any layoffs, that are not accounted for it screams they are getting ready to be acquired.

    Go back and check out to see how story cleaned up WTEL right before they sold it LVLT….

    I never stated it much, but you do not bring in Storey to clean up and operate long term, imho Storey was only brought in to clean up the mess left by JR(KOH).

    who you ask might be interested? nobody domestically, but as the dollar continues it’s free fall, their are several very rich Foreign PTT’s that could benefit and have enough revs to offset the debt and get even better capital to roll the debt.

    I think the BOD had enough and versus brining in an insider such as a Sokol to clean house they wanted someone that looked “nuetral” and had the expertise and track record to clena it up.

    That is Jeff Storey hands down.

    this might be breathing room to unload it all or start unloading non-core assets.

    just my .02

  • Profile photo of Rob Powell Rob Powell says:

    I think by receivables, jeremy meant that they might raise a working capital facility that is secured by accounts receivable. That would let them operate more comfortably at low cash levels as they pay off debt.

    Regarding an acquisition of LVLT – it doesn’t matter much where the stock price is, any buyout of LVLT would have to take care of $6.8B in debt in one bite. The list of players willing and able to refi or pay off that big a pile is probably near zero even at current exchange rates.

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