TCI Communications Inc. (TCIC) and Insight Communications
Co. L.P. completed the formation of their Indiana joint venture, with 320,000 subscribers,
and a related system swap.
Meanwhile, Avalon Cable Holdings LLC expected to close its
$435 million buyout of 210,000-subscriber Cable Michigan Inc.
New York-based Insight will manage the Indiana partnership.
Insight and TCIC, Tele-Communications Inc.'s cable unit, each own 50 percent of the
venture after contributing 160,000 subscribers apiece. Insight is now the largest cable
operator in Indiana.
Kim Kelly, Insight's executive vice president, said
the company secured $550 million in bank loans related to the TCIC venture. "We were
very happy" with the terms, she added.
Since the market for new issues of high-yield debt
securities dried up late this past summer, cable-system buyers have been forced to turn to
banks for deal financing. In some cases, this has raised the cost of acquisitions, partly
because buyers have to put in more of their own equity, and partly because banks are
Avalon, for example, had to postpone a planned high-yield
offering, and it went to the banks with the help of deal partner Lehman Bros. Inc. Avalon
executives said Lehman put together a $105 million bridge loan and $321 million in
separate senior financing. Avalon is mostly owned by buyout fund ABRY Partners Inc.
"Lehman has been very good as far as fulfilling their
commitment to us," Avalon president Joel Cohen said.
Lehman could have opted out, citing a standard
"material adverse change" clause that has provided an escape hatch for lenders
committed to some other recent leveraged buyouts. But other than Merrill Lynch &
Co.'s warning that it might not fund a planned buyout of Centennial Cellular Corp.,
which is controlled by Century Communications Corp., cable deals haven't suffered
that fate, according to industry finance experts.
Avalon's financing costs were probably higher than
they would have been if the high-yield market was open, Cohen said, but the company was
happy to get the deal done, and it expects to recapitalize using junk bonds sometime next
Standard & Poor's Corp. had assigned Avalon a low,
"single-B-minus" credit rating because the deal's $1,200-per-subscriber
debt level was too high to ensure that bondholders would recover their investment if a
"financially stressed situation" occurred.
As part of the planned closing, Avalon was able to secure
franchise transfers in at least 95 percent of Cable Michigan's territories. Cable
Michigan has about 210,000 subscribers.
Elsewhere, TCIC exchanged systems containing about 62,700
subscribers in Evansville and Jasper, Ind., for Insight's Utah cable systems, which
serve about 59,000 subscribers in Brigham City, Sandy and Vernal. TCI has a system hub in
the Salt Lake City area.
Insight -- which bought a majority stake in the former
Coaxial Communications system with 91,000 subscribers in Columbus, Ohio, in August -- has
grown to 510,000 subscribers.
And Cablevision Systems Corp. and Time Warner Cable said
last week that they closed a previously announced trade of cable systems in Connecticut
and upstate New York.
Cablevision gets the Litchfield, Conn., system, with 28,400
subscribers, while Time Warner gets the Rensselaer, N.Y., system, with 29,300 subscribers.
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