Big interest seen in financing for QwestDex's "old-fashioned" LBO

By Paul A. Harris

St. Louis, Mo., Aug. 26 - The announced $2.33 billion of debt financing in the mammoth QwestDex yellow pages deal has the buy-side looking up the Denver telecommunications company's numbers as the stage is set for what one source characterized Monday as "an old fashioned LBO."

Meanwhile a source told Prospect News, Monday that aftermarket activity is "just dead."

Most of Monday's market talk hinged on the $2.33 billion of debt financing that equity sponsors Carlyle Group and Welch, Carson, Anderson & Stowe plan to employ in the $2.75 billion first leg of the QwestDex LBO.

According to sources close to the bank deal, the size figures to be somewhere in the $1.33-$1.5 billion range with an approximately 50-50 split between revolver and term loan.

One source confirmed Monday that the banks in play in both the bank deal and what figures to be an approximately $1 billion of new junk bonds are Banc of America Securities, Deutsche Bank Securities Inc., JP Morgan, Lehman Brothers and Wachovia Securities, Inc.

When Prospect News asked one buy-side source if the QwestDex bank deal appeared to be of interest, the source said: "I don't see how you could be in this market and not be interested in QwestDex.

"It looks like it's going to be a huge deal, and an old fashioned LBO deal, which is pretty darn rare," the buy-side official added. "It brings back those memories from 1988.

"It's pretty high leverage versus the deals we've seen recently. It's levered five-and-a-half to six times. But it's a completely different cash flow profile from most of what we've seen - more like an old-fashioned LBO where the cash flow was supposed to be stable."

That said, the source noted that the buy-side has an important judgment to render as it studies prospective positions on QwestDex.

"Everybody gets to speculate as to whether the internet is a real threat," the official stated. "I read that internet yellow pages views were 10% of total views. I was amazed it was that high. I use it myself, though. People at work with high-speed connections tend to use the internet but God knows at home I use the yellow pages. I think we all probably do. We get those new-fangled yellow pages from other people and we don't care because we're used to the yellow pages we're used to. Only one (yellow pages operation) in a given market it seems to me can really attract the good advertising dollars.

"So if you think the internet's going to take years for people to get used to, then you probably like the QwestDex deal."

The buy-side source also specified that work on the QwestDex deal would likely not go to waste as the market heads into autumn.

"God knows there are other directories deals coming down the pike potentially," the buy-sider said. "Sprint is coming pretty soon, maybe, if they sell that business. So we all have to get used to figuring out if we like directories deals.

"One would also think that they're going to become a notable part of the index. So those who compete against indexes are going to have to worry about that too."

One market source close to the QwestDex deal said that the specified sizes represent "working" figures. If the junk bond market fails to revive after Labor Day from its summer languor the bank deal could increase in size.

As Prospect News made its rounds among traders Monday it became challenging to discern whether the voices on the other end of the phone line were traders or undertakers.

"It's dead," was a comment that typified traders' responses Monday.

When Prospect News pressed to know whether Tesoro Petroleum Corp.'s announcement it had agreed to sell its Northern Great Plains Products System to Williams Energy Partners LP for $110 million in cash as part of its attempt to reduce debt by raising $200 million this year, the trader's only response was: "The market's dead."

Well then, the Prospect News bank loan desk continued, how about any aftermarket activity predicated upon the news from XO Communications Inc. that its reorganization plan was approved in US Bankruptcy Court on Monday?

"Just dead," the trader said. "Dead is dead, right?! Dead period."

Meanwhile on Monday, a buy-side source forecast that the market for new bank loan paper, post-Labor Day, figures to be anything but dead.

"I think everybody's now primed for a bunch of big deals: QwestDex, Burger King, Del Monte, and possibly a Sprint deal later in the fall.

"Everybody's creative juices are flowing," the buy-sider continued. "And with that kind of size I would imagine the secondary bid is going to come down some and there are probably a whole bunch of people on the sidelines just waiting and drooling and hoping that certain names they like get under par. They have stared at a bunch of names they like at 101 for the last six months and they're hoping the supply gives them a shot at something below par.

"One of the most interesting things in the last few weeks is that all those opportunistic financings cut pricings down from Libor plus three to Libor plus two-and-a-quarters," the source added. "Then the market backed up. So all those loans that got up to par-and-a-half/101 off the break are going to get repriced down with the market and trade below par.

"That would be nice. I would be happy for that. I'm sure that a lot of others would be happy for that too."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.