DirecTV $800 million term loan B close to subscription ahead of Thursday launch

By Sara Rosenberg

New York, Feb. 12 - DirecTV Holdings LLC's new $1.55 billion credit facility has received a lot of interest ahead of Thursday's bank meeting, a source close to the deal told Prospect News. As of Wednesday evening the source said he had heard that the $800 million B loan was already close to being filled.

"It's an attractive sector, attractive business model, steady cash flows and there are rumors that it may be bought by an investment-grade company," a market professional said, explaining why the deal is receiving so much positive investor attention. Currently, market speculation is that SBC Communications Inc. and Rupert Murdoch may be bidding on the non-investment grade company, the professional added.

That view also received support from Standard & Poor's in its rating assignment for the loan Wednesday. The rating agency put a BB- assessment on the new facility and placed it on CreditWatch with positive implications, saying the positive watch reflects its assessment of the likelihood that DirecTV Holdings or its parent Hughes Electronics Corp. could be acquired by a company with higher credit quality than Hughes.

The new loan consists of a $250 million five-year revolver with an interest rate of Libor plus 350 basis points, a $500 million five-year term loan A with an interest rate of Libor plus 350 basis points and an $800 million seven-year term loan B with an interest rate of Libor plus 375 basis points, according to a syndicate source.

Security for the loan is substantially all of DirecTV's assets.

DirecTV will use the proceeds from the sale of $1.4 billion senior unsecured notes due 2013 and the term loans to repay outstanding indebtedness under parent Hughes' existing credit facilities, to fund Hughes' business plan through projected cash flow breakeven and for Hughes' other corporate purposes, the release said. Hughes' existing $1.8 billion senior secured credit facilities will terminate upon the repayment.

Both the bank debt and the notes offering are expected to close by early March, according to a news release.

Deutsche Bank, Bank of America, Credit Suisse First Boston, Goldman Sachs and Salomon Smith Barney are the lead banks on the deal.

DirecTV is an El Segundo, Calif. digital satellite television service provider.

In the secondary, Qwest Communications International Inc.'s bank debt was a "touch heavier" on Wednesday, one day after the company's announcement that it discovered additional restatement entries to the 2001 and 2000 financial statements regarding revenue and expense recognition and cost accrual issues, according to a trader.

The bank paper was quoted with a 92½ bid and a 93½ offer, off about half a point on the day, the trader added.

Early in 2002, Qwest began an analysis of revenue recognition and accounting treatment for optical capacity asset transactions, the sale of equipment to certain customers, and QwestDex, including the changes in the production schedules and lives of some of its directories. Subsequently, the review was expanded to include an assessment of internal controls, as well as accounting policies, practices and procedures.

Currently, the company expects revenues in 2001 to be reduced to $18.37 billion, down $1.325 billion from the original reported number of $19.695 billion. For 2000, revenues as restated are $15.721 billion, down $889 million from the original number of $16.61 billion.

Adjusted EBITDA as restated for 2001 is $6.036 billion, down $1.317 billion from the original number of $7.353 billion. As restated for 2000, adjusted EBITDA is $6.075 billion, down $842 million from the previously reported $6.917 billion.

The restated financial statements are subject to audit by KPMG.

Qwest is a Denver provider of local telecommunications and related services, wireless services and directory services.

Meanwhile, El Paso Corp.'s bank debt, despite the recent surge of negative news including management changes and rating downgrades, has held its ground with quotes that are basically in the same context as they were before all this news was released, according to a trader.

The company's paper was reported to be in the high 80s. "It's probably around 86/90. Unchanged," the trader added.

On Tuesday, the Houston natural gas company announced that William A. Wise, chairman and chief executive officer, is retiring but will remain in his current role until a successor CEO is named and thereafter as chairman until the end of the calendar year.

"While the last year has been unprecedented in what our industry and our company has faced, we are aggressively implementing a business plan to preserve and enhance the value of our core operations," Wise stated in a news release. "We are focused on creating value for our shareholders by generating stable earnings and cash flow in our core businesses, strengthening and simplifying our balance sheet, maximizing liquidity, reducing our debt, and resolving our other outstanding issues. I intend to continue to implement this plan while assisting the board in achieving a smooth and successful transition."

Also on Tuesday, Moody's Investors Service downgraded El Paso including cutting its senior unsecured debt to Caa1 from Ba2, affecting $25 billion of debt.

Moody's said the downgrade reflects 1) significantly reduced near-term expectations for operating cash flows; 2) debt that remains high relative to the company's cash flows; 3) the strain on liquidity from the increase in debt repayments required this year; 4) the uncertainty as to whether asset sales will provide sufficient and timely proceeds to help cover its larger-than-expected cash deficit; and 5) execution risks related to El Paso's efforts to scale back its merchant energy activities, including exiting energy trading, consolidating the power business of its Electron affiliate, and divesting its petroleum and LNG businesses.

At the end of January, El Paso had about $600 million of cash. The company has a $3 billion 364-day bank facility expiring in May 2003 and a $1 billion term loan expiring in August 2003. The 364-day facility has a one-year term-out option, which, if exercised, could potentially provide liquidity through May 2004.

About $1.5 billion of capacity remains on the 364-day facility, and the $1 billion term loan is fully drawn. Drawing on the $1.5 billion left on the 364-day facility will be critical to the company's meeting its near-term obligations, including $1 billion of Electron notes coming due in March and minority interest amortizations, Moody's said.

Last week, Standard & Poor's downgraded El Paso's senior unsecured debt to B from BB- and made similar downgrades to its subsidiaries.

S&P said the downgrade to El Paso reflects continued reductions in cash flow estimates, heightened refinancing risk, the inability to successfully meet debt reductions goals, and a deterioration in the company's liquidity position.

Of paramount importance to the company's ability to persevere current conditions is the renegotiation of its credit facilities ($3 billion credit facility maturing in May 2003 and a $1 billion credit facility maturing in August 2003) and regaining access to the capital markets at the holding company level, S&P said.

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