Level 3 bank loan bid and offer improve on convertible notes sale announcement

By Sara Rosenberg

New York, July 8 - Level 3 Communications Inc. broke the recent pattern of weakness in the telecommunications sector and strengthened slightly in response to news of an agreement to sell $500 million of 9% junior convertible subordinated noted due 2012 to Longleaf Partners Funds, Berkshire Hathaway Inc., and Legg Mason, Inc.

The company's bank debt was said to be bid at 65 and offered at 75, according to a fund manager, up from quotes last week in the low 60s.

Longleaf Partners is purchasing $300 million notes and Berkshire Hathaway and Legg Mason are each buying $100 million, according to a company press release.

"We invested in Level 3 to take advantage of consolidation opportunities in the telecommunications arena. We believe these opportunities are substantial," said O. Mason Hawkins, chairman and chief executive officer of Southeastern Asset Management, adviser to Longleaf Partners Funds.

"Liquid resources and strong financial backing are scarce and valuable assets in today's telecommunications world," said Warren Buffett, chairman of Berkshire Hathaway. "Level 3 has both."

"We believe more strongly than ever that Level 3 is emerging as one of the ultimate leaders, survivors and consolidators in the industry," said Bill Miller, chief executive of Legg Mason Funds Management.

Proceeds from the convertibles will be used for general corporate purposes, capital expenditures and working capital, the release said.

Otherwise, it was a quiet day in secondary bank loan trading as people started to settle back in after the long holiday weekend, according to traders.

In other news, Wynn Las Vegas, a subsidiary of the Las Vegas, Nev. gaming company Wynn Resorts Limited, is expected to come to market shortly with a new credit facility, according to a syndicate source, although an exact date was not immediately available. The company signed a commitment letter for $1 billion in new credit facilities to help finance development and construction of Le Reve, a luxury hotel and casino resort in Las Vegas, Nev., and to meet pre-opening expenses and debt service obligations, according to a filing with the Securities and Exchange Commission.

"This is big for banks in gaming," a fund manager said. "But people have had positive experiences with the sector and the CDO bid may be okay. The lack of supply [in the bank loan market] will help a lot. [And], Steve Wynn has never failed. He always pays off his debt so if anyone can get it done, he can. It's all about reputation."

However, the fund manager added, the deal will depend on whether the mortgage bonds get done. "It's $350 million second mortgage bonds issued under a large amount of bank debt. That's a tough sale," the fund manager said.

Deutsche Bank will act as sole administrative agent, joint advisor, joint bookrunner and joint lead arranger. Bank of America will act as sole syndication agent, joint advisor, joint bookrunner and joint lead arranger. Bear Stearns will act as documentation agent, joint advisor, joint bookrunner and arranger, according to the filing.

The new loan will consist of a $250 million seven-year delayed-draw senior secured term loan and a $750 million six-year senior secured revolver. Prior to Le Reve's opening, borrowing under the loans will bear interest at Libor plus 400 basis points, or at Libor plus 350 basis points if the company's senior secured long-term debt rating is at least BB- and Ba3, the filing said. After the opening, the interest rate will be reduced to Libor plus a margin based on the company's leverage ratio.

"We anticipate that we will begin to draw down funds under these facilities, subject to satisfaction of the conditions in the disbursement agreement, approximately 16-19 months after the closing," the filing said. "We anticipate that we will draw down approximately $747 million under the revolving credit facility to fund construction, development, equipping and opening of Le Reve." In addition, the company anticipates drawing $250 million under the term loan for Le Reve.

The credit facilities are expected to close concurrently with the closing of the initial public offering. Besides Wynn Resorts' common stock sale, Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp., will jointly offer $350 million in aggregate principal amount of second mortgage notes.

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