Windstream gets $1.1 billion funding commitment, seeks loan amendment

By Sara Rosenberg

New York, Aug. 1 - Windstream Corp. has received a commitment for $1.1 billion in financing in connection with its acquisition of Paetec Holding Corp. and is looking to amend its senior secured credit facility, according to news releases.

The amendment would permit the issuance of bridge loans and the issuance and repayment of escrow notes.

Also, the amendment would waive the guaranty and security requirements with regard to Paetec, eliminate the capital expenditures covenant and provide a waiver for any breach due to the change-of-control provisions under Paetec's outstanding notes.

J.P. Morgan Chase Bank is the administrative agent on the credit facility.

Under the agreement, Paetec shareholders will receive 0.460 of a share of Windstream common stock per share. Windstream expects to issue about 73 million shares of stock valued at about $891 million, based on the company's closing stock price on July 29.

Also, Windstream also will assume or refinance Paetec's net debt of $1.4 billion at the time of closing.

Proceeds from the new financing commitment would be used if the Paetec debt is refinanced.

Following completion of the acquisition, Windstream intends to guarantee Paetec's outstanding 9½% senior notes due 2015, 8 7/8% senior secured notes due 2017, and 9 7/8% senior notes due 2018.

"We have committed financing associated with this transaction," company officials said in a conference call on Monday.

When combined with revolver capacity, Windstream has "the ability to either extend or refinance [Paetec's] debt at closing," officials continued.

"But clearly one of the opportunities we do have is to lower the cost of capital of that business. We have a substantial spread in the cost of capital between Paetec and Windstream, and we think over time that's a financial opportunity that will accrue to the investors at Windstream stock," officials added.

Pro forma leverage before run-rate synergies is 3.7 times and after run-rate synergies is 3.5 times.

The transaction is expected to generate annual pre-tax operating cost synergies of about $100 million, and the combined company will have total revenue of around $6.1 billion and OIBDA of roughly $2.4 billion.

Windstream said that it is very committed to a long-term leverage target of 3.2 times to 3.4 times, and that, with synergies, this deal is actually a deleveraging event.

The transaction is expected to close within six months, subject to certain conditions, including necessary approvals from federal and state regulators and Paetec shareholders.

Upon completion, Paetec shareholders will own about 13% of the combined company.

Windstream is a Little Rock, Ark.-based communications and technology solutions provider. Paetec is a Fairport, N.Y.-based competitive local exchange carrier and provider of telecommunications services.

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