Level 3 Taps Debt Markets For Another Refinancing Move

November 17th, 2014 by · 10 Comments

After every acquisition, Level 3 goes to work on that complicated balance sheet, and this morning they are doing so again.  Although actually this one was probably in the works regardless. 

Level 3 intends to raise $600M in a private offering of senior notes.  They'll be using the funds to refnance the $605.2M in 11.875% notes due 2019.  That chunk debt becomes fully callable on February 1, 2015, and is by a wide margin the highest interest debt Level 3 still carries on its balance sheet.  It was issued in January 0f 2011, three months before the Global Crossing deal was announced.

The financial strength brought about by the Global Crossing deal and successful integration finally gave Level 3 the chance to enter something of a virtuous circle when it comes to debt and interest expense.  The savings in that department were larger than anticipated, and with the tw telecom acquisition now complete they will no doubt be looking for more such opportunities.

In fact, there's another $500M they raised in March of 2011 at 9.375% (the second highest interest debt on Level 3's balance sheet) that also becomes fully callable in April, 2015.  I'll bet that if the debt markets are sufficiently interested this $600M offering will get expanded.

 

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Categories: Fiber Networks · Financials

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10 Comments So Far


  • Morty says:

    Rob,
    You can add 300 mil @8.875% callable on 6/1 & 1.2 bil @ 8.125% callable on 7/1 .

    475 mil converts @ 7% convert to 18 mil sh on 3/15 .

    Morty

    • Anonymous says:

      So what will Level 3 save in interest expense in 2015 as a result of all this? If they integrate TWTC smoothly and efficiently and synergies and top line revenue growth kicks in modesty then this to me is a must own stock…if it isn’t already.

      • Morty says:

        Anon,
        Re the 11.875% debt. LVLT will save 33 mil in int exp in 2015,they will save 36 mil per yr for 16,17,18 & 3 mil in19. The conversion will reduce int exp by 27 mil in 2015 & 33 mil in subsequent yrs.
        If everything mentioned previously were refi’d at similar rates it would reduce 2015 int exp by another 33 mil . However, as they pile up cash,they may choose to pay down some of this debt using cash on hand , thereby further reducing int exp.
        LVLT standalone should have in excess of 300 mil in free cash flow for 2014 .That goes to between 700 mil -1 bil for 2015 [combined lvlt/twtc] .

        • Anonymous says:

          Morty, aren’t you ignoring the call premium and underwriting fees mentioned below in your analysis?

          • Morty says:

            Anon—-The call premium & underwriting fees are one time items, these bonds mature in 2019 . For accounting purposes, the premiums & fees are not considered int exp . They are handled elsewhere.
            The equation relating to free cash flow is ebitda -int exp – cap/ex = fcf .

            Addendum—I previously stated that free cash flow would be between 700 mil & 1 bil for 2015 , this is excluding one time items such as integration costs & transaction costs ,etc.

  • Anonymous says:

    The $605.2m 11.875% bonds are callable at 105.94. This means they’ll pay $641.1m to retire those bonds or, in other words, pay a premium of $36m.

    As a reference point for what they may pay on the new bonds, on 4/25/2013 Level 3 issued $300m 8.875% corporate bonds due 6/1/2019.

    If Level 3 gets same coupon they’ll save annually $18m in debt service (on same $600m).

    But they’ll have paid a premium of $36m to retire those 11.875% bonds.

    They will also pay roughly another $6m in underwriting fees assuming 1%.

    Between underwriting fees and call premium, Level 3 is paying $42m upfront to save roughly $18m/yr in debt service.

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