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Longtime Cable Lender PNC Wants Out

PNC Financial Services Group Inc., long one of the cable industry's top lenders, is making moves to shed a significant portion of its $2 billion cable and telecommunications loan portfolio, according to sources.

PNC has been involved in the cable industry for years. It was one of the primary lenders to Lenfest Communications Inc., the Pennsylvania MSO that was sold to Comcast Corp. last year.

According to sources, PNC has been one of the top five cable lenders over the past 15 years. But the bank is getting ready to off-load about three-quarters-or $1.5 billion-of its cable loans.

Some sources, many with long-standing relationships with the bank, say that PNC is not liquidating its entire cable portfolio, but instead trying to concentrate on in-market customers. Pittsburgh-based PNC has operations in Pennsylvania, New Jersey, Kentucky, Delaware and Ohio.

Although once a force in the cable business, PNC's decision to off-load a large part of its cable portfolio was not expected to be a major blow to the industry. According to sources, there are plenty of other banks willing to take up any slack.

PNC was formed in 1983 by the merger of Pittsburgh National Corp. and Provident National Corp. It's one of the largest regional banking entities in the country.

According to its fourth-quarter financial statement, the company had assets of $69.8 billion.

Some of PNC's largest customers have been paying down their bank debt significantly. For example, sources said Comcast has whittled down its PNC debt from $200 million to less than $50 million. And with about $500 million left in the portfolio for a handful of operators, PNC is not likely to remain the major force in the industry it once was.

"If they're spreading $500 million between five or 10 names, that works out to about $50 [million] to $100 million each," one source said. "That's not enough to become a leader."

Scott Meves, manager of PNC's media and telecommunications group, was said to be traveling and could not be reached for comment.

PNC has been conspicuously absent from some recent cable financings and sources said the regional bank has found it hard to compete, especially as cable companies grow larger and are able to seek out better deals.

"I think they woke up and decided to abandon the [cable] industry," said one MSO executive that asked not to be named. "They have decided that they are not really geared to go after the large corporate sector of the market. It's almost as if this industry has outgrown that bank."

As larger cable operators have achieved near-investment-grade status, the executive said, they are able to seek out large loans at relatively fine interest-rate spreads. While banks don't make a lot of money on those borrowings, they more than make up the difference by selling other products to operators, such as derivatives and fixed-income securities-products that PNC does not offer.

PNC spokesman Brian Goerke declined comment.

PNC's decision to back out of cable comes just as the industry's debt markets are beginning to rebound.

Earlier this month, cable companies raced to do a flurry of deals, beginning with Charter Communications Inc.'s $1.75 billion junk bond offering on Jan. 5. Charter had originally planned to issue $850 million in debt. That was followed by a $1.5 billion bond deal from Comcast Corp.; a $500 million bond offering from Mediacom Communications Corp.; and bank financings from Adelphia Communications Corp. and Insight Communications Co. Inc.

"There is a lot of enthusiasm for cable," said one banker who asked not to be named. "The only issue you ever have is that because of all of the consolidation in the industry, people end up with an enormous concentration for a single name. That, in the aggregate, can give you exposure."

As the economy begins to cool off, lenders are even more attracted to cable because they feel it's much more recession-resistant than other entertainment industries.

"My sense is that with them [PNC], cable got caught up in a broader strategy," the banker said.

But one MSO source said banks are becoming more cautious in making loans, a mind-set brought on in part by bad loans in the telecommunications industry.

"It's a question of the cost of capital. I think the recent 50-basis-point reduction in the [Federal Reserve] rate is going to help an awful lot," the source said. "There are credit issues in the bank market. It reminds me a little bit of 1990-you stop lending."

As a result, the source said, PNC may have some difficulty in selling off its cable portfolio.

"It's a very tight bank market out there right now," the MSO source said. "It [$1.5 billion] is a lot of capacity in not the greatest liquid market. It all depends on what PNC management is willing to take as a loss."

This wouldn't be the first time PNC has sold off assets. Last year, the company agreed to sell its residential mortgage-lending business to Washington Mutual F.A. for $605 million in cash. In 1999, PNC sold off its credit-card business.

According to its last quarterly report, the company "continues to look for ways to exit non-strategic lending businesses."