Charter drops by 50 basis points on yanked $1.7 billion note sale; Dex B loan upped by $150 million

By Sara Rosenberg

New York, Aug. 15 - Charter Communications Inc.'s term loan B suffered some backlash from the company's decision to pull its $1.7 billion bond offering, moving lower by about half a point in an otherwise non-eventful secondary bank loan market. Meanwhile Dex Media West LLC's term loan B was upsized by $150 million - and the bond offering downsized by the same amount - as market appetite for the paper was insatiable.

Late Thursday, Charter announced that its indirect subsidiary, Charter Communications Holdings LLC, terminated its previously announced tender offers for some of their convertible senior notes, senior notes and senior discount notes.

"The dynamics and fundamentals of the high yield bond market have changed materially since we commenced the offers July 11," said Carl Vogel, Charter president and chief executive officer, in a news release. "The combination of a significant increase in the yield of the benchmark 10-year Treasury and mutual fund outflows over the past few weeks made this transaction economically unattractive for the company. We continue to be committed to improve our capital structure over time and will revisit this and other transactions as market conditions improve."

Over $5.2 billion of Holdings' senior notes and senior discount notes had been tendered and $790 million of Charter Communications' convertible senior notes had been tendered as of 12:00 p.m. ET on Aug. 14.

On Friday, Charter's B loan was quoted at 91½ bid, 92½ offered, compared to 92 bid, 93 offered on Thursday, according to a trader, heading lower despite the lack of enthusiasm that was previously shown in the bank loan market when the bond deal was still being marketed.

Following the beginning of the roadshow for the bonds on Aug. 5, Charter's term loan B dropped by about a point and a half within two days to the 92½ bid, 93½ offered level. This downturn was attributed to the lack of positive feedback in the market regarding the progression of the notes offering.

Charter's decision in the beginning of this past week to restructure the bond deal failed to incite a real upturn in performance on the bank side, although the debt had managed to move up slightly, hitting the 93 bid, 94 offered level since initially dropping at the start of the roadshow.

This past Tuesday, it was revealed that the bond deal had been restructured into an offering from a single issuer as compared to the original plan of having two issuers, one senior to the other on the capital structure, each offering $850 million of 10-year non-call-five notes.

And then on Wednesday, the St. Louis cable company revised price talk to the 10 1/8% area from 9¼%-9½% on the seven-year non-call-four notes and 10¼% area from 9 3/8%-9 5/8% on the 10-year non-call-five notes.

Although the company planned on repaying $500 million of bank debt with proceeds from this pulled bond offering, the paper was not expected by market participants to trade much higher than the 93/94 level, since, according to one trader, a $500 million paydown would not really make a dent in Charter's outstanding debt levels given the enormous amount of bank debt that the company has.

As for Dex Media West, the now $1.2 billion institutional tranche, which carries an interest rate of Libor plus 275 basis points, received so much demand from the bank loan market that the decision was made to upsize the loan and reduce the cost of capital for the company, a market source said.

The credit facility (Ba3/BB-) also contains a $100 million revolver with an interest rate of Libor plus 300 basis points and a $960 million term loan A with an interest rate of Libor plus 300 basis points.

JPMorgan, Bank of America, Deutsche Bank, Wachovia Securities and Lehman Brothers are the lead banks on the deal.

Proceeds are being used to help fund the leveraged buyout of the yellow pages directories business by The Carlyle Group and Welsh, Carson, Anderson & Stowe from Qwest Communications Inc.

Overall, the secondary was quiet, with no real trading seen as the big blackout of 2003 continued to affect many market participants, according to various traders. A lot of people were out of the office, with commuters facing transportation issues and a continued lack of power. And the few people that were around expected to leave work early due to the lack of activity, according to a trader.

Following up, Per-Se Technologies Inc. bank meeting on Thursday was "nothing less than spectacular" and was "well attended by in-person attendees and on the phone", a source close to the deal told Prospect News on Friday. It's a "great story to tell with this company," he added.

Per-Se launched a $175 million credit facility, consisting of a $50 million three-year revolver with an interest rate of Libor plus 350 basis points and a $125 million five-year term loan B with an interest rate of Libor plus 400 basis points.

Bank of America and Wachovia are the joint lead arrangers on the deal.

Proceeds, combined with the estimated net proceeds of approximately $26 million to $28 million from the divestiture of the Patient1 product line, will be used to refinance the company's outstanding $160 million 9½% senior notes, according to a filing with the Securities and Exchange Commission.

The refinancing and retirement of the senior notes is expected to be completed near the end of the third quarter.

Per-Se is an Atlanta provider of integrated business management services, enterprise-wide software and electronic commerce solutions to healthcare providers.

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