TW Telecom Raising $430M, Preparing to Make a Move?

March 3rd, 2010 by · 10 Comments

Competitive fiber and data provider TW Telecom (NASDAQ:TWTC, news, filings) announced today that it intends to raise $430M in senior notes due 2018 .  They intend to use the money to refinance their current 9.25% bonds due 2014, of which there is $400M currently outstanding. What’s interesting here is that the debt just became callable at just above 103% of face value on February 15, but they aren’t calling it.  They are tendering for it at 100.4% with another 3% consent payment, and are seeking to have covenants eliminated and other terms adjusted.  This debt isn’t due for 4 years and has been trading above 103 consistently.  While the credit markets have improved, I doubt they will save a huge amount on interest just yet so what is TW Telecom up to?

I think this is less about a refi and all about those covenants.  This debt was issued back in 2005 when the company wasn’t in as powerful a position as they are now.  In the recently released 10K the covenants are described as follows:

The 2014 Notes are governed by an indenture that contains certain restrictive covenants. These restrictions affect, and in many respects significantly limit or prohibit, among other things, the ability of the Company and its subsidiaries to incur indebtedness, make prepayments of certain indebtedness, pay dividends, make investments, engage in transactions with stockholders and affiliates, issue capital stock of subsidiaries, create liens, sell assets, and engage in mergers and consolidations.

Hmmm, it sounds to me like they’re preparing for M&A this year, and the covenants on the 2014 debt are in the way.  Perhaps the ideal scenario for them is to raise the $430M, but have only part of the 2014 debt tendered – just enough that those restrictive covenants are erased.  Combined with the $470M or so in cash and short term investments on their balance sheet, they would emerge from this maneuver with both greater flexibility and substantial financial firepower for M&A.

And of course, there are many potential targets for TW Telecom and their stock price is high enough to use as currency as well.  I have always been partial to XO as a fit for them though, and perhaps Icahn is ready now to part with it.

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Categories: Financials · Metro fiber

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10 Comments So Far

  • mmm says:

    Level 3 outbid TW for Telcove in 2006. TW actually made the first offer but Level 3 outbid them and Telcove took the Level 3 offer before allowing a second TW bid. All per the prospectus on the Telcove merger.

    Level 3 and TW may be heading for same merger targets again.

    • Rob Powell says:

      There may be some overlap yes (e.g. XO), but I think in general TW would be more interested in additional metro fiber than Level 3 which probably would be looking at wholesale/longhaul assets.

  • The_highwayman says:

    I have to contain my laughter when rumors of a TWTC/LVLT buyout or merger come up…is it possible? sure…it it likely? probably not at all…

    As far LVLT our-right buying them…LVLT’s equity is no longer overvauled and cannot be used as currency….so any kind of stock/cash on hand offer is out w/o massive dilution…going to the debt markets to finance the purchase is out, due to their already large debt load…would the amigo’s step in? hardly imho….

    as far as merger, that might have more teeth, but cullture is completely different at both companies and I think Herda would want COB/CEO and the ability to bring her current exec line up on board…she is loyal that way…

    besides how does LVLT pay for it? I don’t know what enterprise value TWTC carries but I would have to believe a price tag of $2-$5B is not unreasonable….

    XO, classic QWEST , S wireline there are a lot out there for TWTC, or do we see the pursue a zayo type strategy and go on a shopping spree and build a nationwide backbone through regional MNA?

    I simply don’t know…but I think one thing is very clear, while a TWTC/LVLT MNA looks to be a pancea for some, I don’t think it would really help LVLT all that much, based on previous metro assets and the lack of growth so far from said acquired assets….

    which bring me to my next WAG and purely speculative comment….

    wonder what would happen if Jim received a phone call from down south and was offered a fair sum for his BMG division….

    IOW, what would happen if L3 sold TWTC their entire BMG division…which would give L3 dry powder to re-arrange their own balance sheet and give them dry powder to take out an XO, Global Crossing, etc….

    now the real dream comment would be for TWTC to take out XO and then 6 months later take out the LVLT BMG division….

    that would be quite a play, but I admire TWTC’s conservative nature and that type of rapid fire strategy is why they ahve a share price between $15 & 1$17 a share and not in the single digits and grew very nicely last year….

    who knows, but its going to be fun to watch

    • Rob Powell says:

      A LVLT sale of its entire BMG division still seems unlikely to me, the separation would seem very, very messy. But you never know I guess.

  • carlk says:

    It is funny that you’re laughing about a rumor merger tied to (3) and TWTC that I don’t see referenced anywhere inside this thread.

    Wishful thinking on your part, I guess! 🙂

    Oh yes, one other thing. Jim Crowe said yesterday that, their balance sheet needs no additional REPAIR!

  • carlk says:

    Rob, can you get REAL TIME VIDEO FEEDS on this SITE?

    Then, Highwayman could use a hell of a lot of BANDWIDTH instead of those long RANTS of ridiculous TEXT!

    Besides, I like to see while getting a SMELL for the smart asses who are TAWKIN!

    “Bring it on!” 🙂

  • Dave Rusin says:

    Every time someone refinances debt out for a cheaper rate or managing covenants it quickly becomes an M&A signal by carriers.

    My view — there isn’t two large anythings left worth putting together – any thing “big” in the context of this size financing comes with challenges to do a deal.

    I can see a barbell M&A … not much in the middle — at the low end healthy companies at the high end your largest of telecom carriers globally. Being $1b – $3b in size — you are in the middle of the bar bell and I can’t see cracking any of those eggs together in trying to make an omelet.

    I could be wrong ….

  • Tony D says:

    Wow another year of hearing a merger of XO with someone. Can we please get off this? I guess it’s one of those things if you say it year after year and then after about the 8th time it comes true we get to hear…told ya so. Wow. Carl I. has had this company for how long now? Way past the time frame he usually would keep a company…he is making bank off of it. He will do something with it one day but it’s not going to involve TWTC or LVLT.

    • Rob Powell says:

      The reason XO is at the top of everyone’s M&A lists is that Icahn *isn’t* doing much with it. If he showed any interest in using it to make money in bandwidth or to roll up other assets then the story would be very different. But as long as its main attraction to him seems to be the tax assets rather than the fiber in the ground and the people operating it, the market expects him to slice and dice what’s left eventually.

  • Tony D says:

    Yes but yet again…look at my previous posts…we have been down this road…he will merge this but it’s not gonna be with LVLT or’s going to be a Google or Yahoo. Call it what it is…this (and trust me I love your articles great insight ) it will be a big hit just not with those 2 mentioned……I give it another 2 years Google/ Yahoo…but then again…what do I know.

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