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.
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