RCN reaches agreement with lenders to amend loan to provide financial flexibility

By Sara Rosenberg

New York, March 26 - RCN Corp. announced Tuesday it has reached agreement with its senior lenders on amendments to its senior secured credit facility. The modifications to the loan relax the financial and operating covenants allowing for "greater financial flexibility", a company press release said. JP Morgan Chase Bank is administrative agent and collateral agent for the deal.

Under the new amendments, there are "revised covenants to reflect RCN's current long-term business plan with adequate cash cushions built in", the company release said. Some such adjustments, according to a filing with the Securities and Exchange Commission, the maximum senior secured debt ratio (see Table 2) and the maximum total debt ratio (see Table 3). Interest rates on the tranche B term loan are also modified (see Table 1).

RCN will now have the ability to sell non-core assets and keep most of the proceeds for the purpose of reinvesting in the company and increasing liquidity, the press release said. The company will also have the ability to form a joint venture in California for the further development of that market. Additionally, under the newly amended loan, there will be an increase in RCN's ability to obtain letters of credit and an increase in "the current joint venture investment basket", the release said.

RCN, under the agreement, retains its ability to use up to $250 million of new funding to buy back debt, has continued use of 3(a)9 transactions to lower debt, has the ability to attract new capital, including unlimited subordinate debt, retains the first $100 million per annum from the sale of assets and has the rights to a $187.5 million revolver in two years from now, the release said.

"This agreement gives us new and important flexibility to execute our strategic plan," said RCN chairman and chief executive officer David McCourt in a news release. "We will use this flexibility to reach our goals and thrive in this new telecom landscape which has brought difficulty to so many other companies."

In exchange for the relaxed covenants, the company has agreed to make a cash payment of $187.5 million on its outstanding term loan debt and has accepted a reduction in size of its $250 million revolver by $62.5 million. RCN also agreed "not to draw down its remaining $187.5 million revolving loan facility for at least two years", the release said. According to the SEC filing the commitment fee on the company's revolver was increased to 1.50% per annum.

Table 1: New pricing levels

Debt Ratio ABR Spread Eurodollar Spread

Greater than 10.0:1 2.50% 3.50%

10.0:1 or less but greater than 8.0:1 2.25% 3.25%

8.0:1 or less but greater than 6.0:1 2.00% 3.00%

6.0:1 or less but greater than 5.0:1 1.75% 2.75%

5.0:1 or less 1.50% 2.50%

Table 2: New senior secured debt ratio covenant

Fiscal Quarter Ending Maximum Senior Secured Debt Ratio

March 31, 2005 3.00:1

June 30, 2005 2.75:1

Sept. 30, 2005 2.50:1

Dec. 31, 2005 and thereafter 2.00:1

Table 3: New total debt ratio covenant

Fiscal Quarter Ending Maximum Total Debt Ratio

March 31, 2005 6.75:1

June 30, 2005 6.50:1

Sept. 30, 2005 6.00:1

Dec. 31, 2005 6.00:1

March 31, 2006 5.50:1

June 20, 2006 5.50:1

Sept. 30, 2006 5.00:1

Dec. 31, 2006 5.00:1

March 31, 2007 5.00:1

June 30, 2007 5.00:1

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