Cable companies softer as Charter warns on third quarter earnings

By Sara Rosenberg

New York, Oct. 2 - Cable companies felt softer with levels remaining "sideways" on Wednesday as investors reacted to Charter Communications Inc.'s projection that third operating cash flow would fall short of the previous 13.7% growth guidance. Charter's loan dropped by about two points after the forecast news hit the market place while other cable names, such as Adelphia Communications Corp., only dropped by about half a point.

Charter Communications' loan dropped late in the day on Tuesday as news came out that the company anticipates falling below its previously projected third quarter operating cash flow guidance primarily due to basic analog customer losses. Based on the current forecast, the St. Louis, Mo. cable company expects revenue growth to be approximately 13% for the quarter.

During most of the day on Tuesday, the company's term loan B bank debt was quoted with a bid of 87 1/8 and an offer of 88, up approximately a quarter of a point on positive equity performance, a trader previously told Prospect News. However, following the company's negative forecast for the third quarter at the Goldman Sachs' Communacopia XI Conference, the bank debt dropped down to a bid in the 85 range and an offer in the 86 range. More specifically, one trader had the loan quoted at 85/86, while a second trader had the loan quoted at 851/2/86½ on Wednesday.

Asked if Charter's lower-than-expected projections had investors worried about the cable sector as a whole, the second trader responded: "The cable sector is slightly softer but mostly just sideways."

Adelphia Communications Corp. was one minor casualty of Charter's bad news, as the company's bank debt traded about half a point lower on Wednesday, a distressed trader said.

"All flavors [of Adelphia] traded," the trader said. To give an idea as to where the Coudersport, Pa. cable company's debt was quoted, the trader said the Olympus loan traded around 80 and the Century loan traded "just North of 70".

Other happenings surrounding Adelphia on Wednesday included a bank meeting, according to market sources. The meeting was said to be a call among the bank loan group to discuss bankruptcy proceedings. "The budget is supposed to be in court on Oct. 26 and the company hasn't presented it yet," one market source told Prospect News. "The meeting was to discuss what to do once the budget is seen."

In other news, Extended Stay America Inc. held a call to discuss an amendment to its existing credit facility, which consists of a $200 million undrawn revolver, a $175 million term loan A, a $477 million term loan B and a $150 million delayed draw term loan A-2, according to a fund manager.

"The company is just going through covenants," the fund manager said. "It's the second time the company has broken covenants since the deal was done in July 2001. It's a lodging company so it faced all the hurdles other lodging companies have.

"It's a very loose agreement," the fund manager continued. "There are baskets for subordinated debt repurchases and equity dividends. The bank group is trying to tighten [the agreement] up [by] trying to get rid of the baskets.

Meanwhile, "the company's proposed amendment is to loosen covenants for an eighth fee," the fund manager said.

"The call was only today. It's unclear to me how the amendment will go but I heard Morgan Stanley (who is the lead bank on the deal) has been getting a lot of calls about this," the fund manager concluded.

Extended Stay America is a Spartanburg, S.C. hotel chain.

It's finally here. An institutional launch date has been set for QwestDex, one of the long awaited credit facilities that has been talked about since August. The company is scheduled to hold a bank meeting on Monday regarding the approximately sized $1.5 billion credit facility, a source close to the deal told Prospect News.

The loan is anticipated to consist of a 61/2-year term loan B sized at about $700 with an interest rate of Libor plus 350 basis points and a six-year pro rata portion sized at approximately $800 million with an interest rate of Libor plus 300 basis points, the source said. "All of this is subject to change," he warned. "Details will be finalized before the bank meeting."

JPMorgan, Bank of America, Deutsche Bank, Lehman Brothers and Wachovia Securities are the lead banks on the deal that will be used to fund the directory services company's LBO by The Carlyle Group and Welsh, Carson, Anderson & Stowe.

Other primary news included Wednesday's launch of Genesis Health Ventures Inc.'s $200 million add-on term loan B (Ba3) that has a tenor of five years and an interest rate of Libor plus 350 basis points, according to market sources. Goldman Sachs and Wachovia are the lead banks on the deal.

"I think it was pretty well received," a sell-side source said. "I think people like how the company has performed so far and it has good collateral coverage. Theoretically it should go fine."

Proceeds will be used to help fund the acquisition of NCS Healthcare Inc.

Genesis Health is a Kennett Square, Pa. owner and manager of geriatric care facilities.

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