Bloomberg News

Charter Said to Drop $4.2 Billion Loan as Buyers Flee

August 11, 2014

Charter Communications (CHTR:US) Inc. is no longer seeking to raise $4.2 billion of loans this week as part of an $8.9 billion financing to back its purchase of assets from Comcast Corp. (CMCSA:US), according to a person with knowledge of the matter.

The cable-television operator also is offering to pay a higher interest rate on another part of the deal that’s still in the market. Charter raised the proposed coupon to 3.5 percentage points more than benchmark rates from a previous range of 2.75 percentage points to 3 percentage points, according to the person, who asked not to be named because the terms aren’t public.

Charter’s financing is the latest to struggle in the market for speculative-grade company loans after at least three companies failed to get deals completed last week. Investors are souring on the debt and pulled $1.5 billion from U.S. loan funds in the week ended Aug. 6, their biggest retreat from the market since August 2011.

“It’s not surprising that a deal as large as this would be caught up in the choppiness of the market,” Jonathan Insull, a money manager at Crescent Capital Group LP in New York, said in a telephone interview. “Investors are re-evaluating risk and reward.”

Loans Tumble

Goldman Sachs Group Inc. (GS:US), which helped advise Charter on its agreement with Comcast, is the lead arranger of the financing. Michael DuVally, a Goldman Sachs spokesman, declined to comment.

Banks led by Goldman Sachs may come back at a later date to market the dropped portion of Charter’s financing to investors, according to another person with knowledge of the deal, who asked not to be identified because the information isn’t public.

Leveraged loans have lost 0.26 percent this month after tumbling 0.25 percent in July, the debt’s first monthly loss since last August, according to the S&P/LSTA U.S. Leveraged Loan 100 Index. About $53 billion of leveraged loans for acquisitions need to be raised or are currently being marketed to investors in the U.S., according to data compiled by Bloomberg.

“The loan market needs balance between issuers and borrowers, and this is a healthy part of the process,” said Jason Rosiak, head of portfolio management at Newport Beach, California-based Pacific Asset Management, the Pacific Life Insurance Co. affiliate that oversees about $4.8 billion. “You don’t want deals to get too aggressive, whether lending standards or spreads.”

Visant Deal

Visant Corp., a marketer and seller of school products such as yearbooks, also increased the interest rate it will pay for a $775 million term loan to 6 percentage points more than the London interbank offered rate from 4.5 percentage points, according to a person with knowledge of the deal. The company, which made the changes today, is seeking the loans to refinance debt, the person said.

Paul Carousso, Visant chief financial officer, and Justin Venech, a spokesman for Charter, didn’t immediately return phone calls seeking comment on the financings.

Charter, based in Stamford, Connecticut, has been seeking a total $8.9 billion of bank debt to back the asset purchase, including a $500 million revolving credit line and $8.4 billion of term loans, according to data compiled by Bloomberg and a Standard & Poor’s report on July 31.

Junk Rating

It increased the size of the loan with the interest rate of 3.5 percentage points above benchmark rates to at least $3.5 billion from $3.2 billion, one of the people said. That loan is also being sold at a discount of 99 cents on the dollar, cheaper to investors than a previous offer of 99.5 cents, according to the person.

Charter is rated Ba3 by Moody’s Investors Service and BB-by S&P, three levels below investment grade.

After the acquisition is completed, the cable company’s debt level will rise to more than five times its earnings before interest, taxes, depreciation and amortization, from 4.8 times, Moody’s estimated in a July 31 report.

To contact the reporters on this story: Christine Idzelis in New York at cidzelis@bloomberg.net; Kristen Haunss in New York at khaunss@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Caroline Salas Gage, Faris Khan


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Companies Mentioned

  • CHTR
    (Charter Communications Inc)
    • $162.09 USD
    • -0.10
    • -0.06%
  • CMCSA
    (Comcast Corp)
    • $56.85 USD
    • -0.24
    • -0.42%
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