So much news lately… Privately held CLEC Integra Telecom announced today that it has restructured its balance sheet. The deal swaps debt for equity and will bring their debt down to about $600M, down from $1.3B. Of course, there is a price and in this case it is dilution – with Goldman, Sachs & Co., Tennenbaum Capital Partners, and funds managed by Farallon Capital Management LLC as major new shareholders. The exact terms of the deal were not disclosed, but we can draw a few inferences.
The company’s 2008 EBITDA of $225 and an EV/EBITDA ratio in the area of 5-6 would place Integra’s enterprise value in the neighborhood of $1.1-1.3B, which imples that if it were publicly traded its common shareholders would have suffered over the past year. Therefore the conversion of $700M in debt to equity probably represents substantial dilution, perhaps as high as 50%. This deal was clearly driven by Integra’s need so there is likely no premium, of course we don’t know the magnitude of the need so it could be better or worse – that was just a guess. However, the company is now well positioned to move forward. An EBITDA run rate of $225M can support their reduced debt load and still finance capex at levels around 10% of revenues. That’s more than I expect their business model would require for normal operation.
That Integra was looking for a restructuring was discussed, albeit inconclusively, earlier this month in the comments on my Fiber M&A, who’s next post. This restructuring would seem to take the urgency out of any outright sale of Integra, however they remain a possible target if consolidation begins again over the next year – as seems quite possible. Their assets might appeal to many suitors, however my feeling is that their fit is best with PAETEC (news, filings). Why? The business models are more similar, the geography is complementary, and the former Electric Lightwave fiber assets of Integra seem like a good fit with those they acquired from McleodUSA and now operate. But Paetec may not be ready to rumble yet in the aftermath of this recession.
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