Competitive network operator PAETEC (news, filings) is accessing the credit markets in order to fund the acquisition of Cavalier that was announced two months ago. The nationwide CLEC announced today that it intends to sell $420M in senior notes due 2018, and that the transaction should be completed this week. The new funds plus some already on the balance sheet will be used to fund the $460M purchase price, including the repayment of debt.
It was of course a foregone conclusion that PAETEC would move to raise money, as they finished the third quarter with just $125M in cash and short term investments on hand. In its quest for scale and fiber to put it on, they have certainly been racking up a pile of debt though, haven't they? This move will make the total about $1.4B and will reduce cash levels toward or perhaps below $100M. This $420M in new capital is probably the minimum required to do the deal, which means either the pricing isn't expected to be fantastic or they hope to increase the targeted amount if demand is sufficient.
That said, from what I hear they are still actively looking for additional M&A targets. With fiber from McLeodUSA and now Intellifiber and a few thousand on-net buildings, perhaps they are looking to complete the set with some fiber out west or in the southeast. But with Deltacom now spoken for, Integra or perhaps 360Networks would seem to fit the bill.