Deltacom Decides Not to Refinance $325M in Debt

Kelly Teal, Contributing Editor

February 12, 2010

1 Min Read
Deltacom Decides Not to Refinance $325M in Debt

Southeast CLEC Deltacom (ITCD.OB) this week decided against its plans to refinance $325 million in debt and secure a new $30 million revolving line of credit.

The money raised would have paid off other obligations and helped fund general corporate operations.

But the cost of capital has increased on weaker credit markets, causing Deltacom to rethink its plans. The company was prepared to pay 9-9.5 percent in interest – pricing rose, however, by an additional 2-2.5 percent.

“Given that the company’s current cost of capital is approximately 5 percent, the operational flexibility that would have been provided by the new senior secured notes is significantly outweighed by the estimated new cost of capital,” said Deltacom CFO Richard Fish. Therefore, he added, “the proposed refinancing is unattractive at this time.”

Standard & Poor’s experts agreed. The proposed financing “would have provided the company some benefits,” including the removal of burdensome covenants, said Catherine Cosentino, credit analyst for Standard & Poor’s. Nonetheless, Cosentino affirmed Deltacom’s B and B- ratings and said the CLEC’s outlook is stable.

Yes, the financial maintenance covenants on Deltacom’s existing term loan will tighten this year, limiting the company’s flexibility to weather execution errors or an unforeseen drop in its customer base. However, Standard & Poor’s said it expects Deltacom will continue to keep its end of the deal.

“Available cash balances, coupled with expectations that the company will be at least net free cash flow break-even in 2010, provide it flexibility to pay down debt to, and remain in compliance with, financial covenants,” Cosentino wrote.

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About the Author(s)

Kelly Teal

Contributing Editor, Channel Futures

Kelly Teal has more than 20 years’ experience as a journalist, editor and analyst, with longtime expertise in the indirect channel. She worked on the Channel Partners magazine staff for 11 years. Kelly now is principal of Kreativ Energy LLC.

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