The new $9 billion loan for Time Warner Inc. and its cable subsidiaries underscores the banking industry's growing involvement in the rapidly changing media sector.
The loan, led by Chemical Banking Corp. and supported by managing agents BankAmerica Corp., Bank of New York Co., and J.P. Morgan & Co., will refinance $5 billion of bank debt, replace about $3 billion of public and private debt from three cable acquisitions, and provide some working capital.
It is one of a growing number of media-related deals that have attracted bank financing lately. In fact, a $550 million facility that would enable Time Warner to shed 51% of its Six Flags amusement park business is also expected to come to market this month.
Time Warner's use of the $9 billion bank loan in connection with its recent acquisitions reflects the appeal of the bank loan market as cable companies bolster their competitive positions.
Cable companies have shown a strong appetite for acquisitions in the last year, as they continue to develop regions of subscriber strength and prepare to compete with telephone companies. Time Warner's recent acquisitions are Cablevision Industries, KBLCOM Inc., and Summit Communication Group Inc.
"Cable companies have always applauded the benefits of clustering," said Peter Smith, a managing director at Canadian Imperial Bank of Commerce, one of the larger cable lenders.
Now, said Mr. Smith, cable companies are seeking to grow to the same size as the Baby Bells.
Bankers, for their part, recognize that the fittest cable companies in the battle with telephone companies for growth and survival will most likely be the largest.
"Generally speaking, this will be a clash of the titans," said Mr. Smith. "There is very little place for small entrepreneurial cable companies."
The acquisitive cable companies have turned to the flexible financing available in bank loans in their quest for critical competitive mass.
Time Warner has secured an extra measure of borrower flexibility in its new loan.
Three Time Warner affiliates could draw on the loan, with pricing and covenants varying according to the borrower.
Time Warner Inc., the parent company, which is rated BBB-minus by Standard & Poor's Corp., can draw on the entire five-year revolving credit at a price of 50 basis points over the London interbank offered rate, with a 20-basis-point commitment fee.
Time Warner Entertainment can borrow up to $4 billion at Libor plus 87.5 basis points, with a 35-basis-point commitment fee, and Time Warner Advanced Newhouse can borrow up to $5 billion at Libor plus 50 basis points, with a 20-basis-point commitment fee.
The four lead banks have each committed $500 million. The group is seeking banks willing to lend up to $300 million apiece for a 30-basis- point allocation fee or $200 million for a 25-basis-point fee.
Those that lend $100 million, $50 million, or $25 million would receive lower fees.
Market sources said that more than 100 banks attended a recent bank meeting, and they noted that foreign banks are likely to participate.
Bankers Trust New York Corp., which had co-led with Chemical a $6.2 billion deal for Time Warner in 1992, is not a lead on this deal. A spokesperson said the banking company continues to do business with the media giant. Market sources expect that Bankers Trust will participate in the new loan.
The apparent growth in cable lending during this period of consolidation is deceptive. "For cable lead banks, there is a substitution effect," said Mr. Smith.
"As one operator acquires another," he said, "we often lend money to one company to pay off our own loan to another, so these new deals don't necessarily increase our exposure."
Media analysts generally applauded Time Warner's acquisitions. Shareholders and analysts, however, have questioned the company's $19 billion debt load.
"If there is a concern, it is that there is a long capital spending cycle ahead for the cable industry to upgrade and deliver pay per view and other services," said Edward Hatch, a media and entertainment analyst at UBS Securities Inc.
Time Warner, however, has started reducing its debt, for example, by selling the 51% stake in Six Flags to Boston Ventures Management Inc., a leveraged buyout firm.
Chemical is leading the loan for Boston Ventures, which market sources expect to have a $100 million, eight-year "B" tranche priced at Libor plus 300 basis points; a $100 million, seven-year revolving credit, and a $350 million, seven-year term loan.
Chemical's venture capital group is expected to hold an equity portion of the deal, while the bank will also lead the firm's subordinated finance offering. The bank will also be a financial adviser.
"Time Warner engineered that deal nicely," said Tom Wolzien, a video and media analyst at Sanford C. Bernstein & Co. "They are getting cross- licensing fees and reducing the payment on their debt at the theme parks."
