The return of ex-cable entrepreneurs to the business is meeting with mixed
results as the biggest player, Bresnan Communications' Bill Bresnan, is facing a
sour financial market and struggling to get loans for his $735 million deal to
buy systems from AT&T Broadband.
Bresnan -- one-time president of TelePrompTer Corp., who sold his last company
to Charter Communications Inc. for $1.4 billion -- said the financing markets
are the toughest he has seen in perhaps 30 years.
Bresnan's deal was the
first and the biggest. After 18 months of dancing, he snagged
a deal in April for 320,000 AT&T Broadband subscribers in 41 smaller
cities and towns throughout Colorado, Wyoming and Montana.
The rural properties are afterthoughts to AT&T Broadband and were pretty
much starved for capital.
So in addition to the $735 million purchase price, Bresnan needs another $300
million to rebuild the neglected properties.
Major fund
Providence Equity Partners Inc. had agreed to put up about $350 million in equity,
industry executives said.
But Bresnan was planning to finance the rest with bank loans and junk
bonds.
The plan called for investment banker Salomon Smith Barney Inc. to cover the
junk-bond portion with a short-term 'bridge' loan, then organize the sale of
long-term bonds to repay that loan shortly after the deal was done.
But Salomon Smith Barney backed down, saying it can't sell bonds at any kind
of interest rate Bresnan would be willing to pay.
'The whole debt market is a shambles,' said another former cable executive
looking to buy systems.
So Bresnan is trying to restructure
the deal.
He wouldn't provide any details, but other industry executives said he's
looking for AT&T Broadband -- and its soon-to-be owner, Comcast Corp. -- to
keep a piece of the venture so it qualifies for Comcast's programming
discounts.
That alone could increase the systems' operating cash-flow margins by around
5 percent and possibly make lenders happier.
At the same time, ex-Simmons Communications Corp. CEO Steve Simmons won the
bidding for a group of cable systems being sold by RCN Corp., cutting a deal to
buy the properties for $245 million, or $3,100 per subscriber.
RCN executives had been hoping for more but badly need the cash to meet the
terms of its bank loans.
The return of the cable veterans is important because they're
about the only ones willing to do cable deals.
The slumping stock market has the big players -- Cox Communications Inc.,
Cablevision Systems Corp., Charter and Comcast -- touting how they're conserving
their cash, and not expanding.
Anxiety over the Adelphia Communications Corp. scandal, fears of other accounting
games and some MSOs' debt levels have driven cable stocks down 75 percent to 90 percent so far
this year, even though all of the MSOs are posting 12 percent to 18 percent growth
in operating cash flow.
Some companies' bonds are trading for just 30 cents to 50 cents on the
dollar.
But giant private equity funds are snooping for some fire-sale deals amid the
financial carnage in the cable industry. And the financial buyers need strong
cable management to run properties after the deal. That's drawing cable veterans
who sold their companies during the late 1990s gold rush back into the game.
But even fire-sale prices can be tough to complete.
'It's not an easy task putting together a deal in this market,' Bresnan said.
'There's been fairly significant disruption in the debt
markets.'
