Cerberus and NewSpring back telecom company

The credit lines for Otelco total $105 million and will repay outstanding debt arranged by Antares Capital, which is due to expire in April.  

Telecommunications service provider Otelco has lined up $105 million in new credit facilities from Cerberus Business Finance and NewSpring Mezzanine Capital.

The firm, based in Oneonta, Alabama, said it is taking on a $85 million five-year first lien term loan and a $5 million revolving credit facility with Cerberus, as well as a $15 million subordinated loan from NewSpring.

Cerberus Business Finance, the direct lending arm of the US alternative investment firm, is in the process of raising a lending fund in partnership with PNC Bank. Its first lien loan will bear an interest rate equal to either a reference rate plus a margin of 5.5 percent or LIBOR +7.75 percent, with a 1 percent LIBOR floor.

NewSpring’s loan has a five-and-a-half year tenor and carries a cash interest at 12 percent and payment-in-kind interest at 2 percent. NewSpring is in the process of raising its third mezzanine fund, which has a $75 million target and has so far collected $45 million, according to a Securities and Exchange Commission filing in December.

“In a little less than three years, Otelco has reduced its current credit facility borrowings by $62 million to stand at approximately $100 million at the end of 2015,” said Rob Souza, president and chief executive of Otelco.

“As our industry landscape has changed, the company has adjusted its financial strategy to redirect cash to reduce our leverage to current industry expectations.

“Cerberus and NewSpring are knowledgeable and experienced lenders in the telecommunications sector. We look forward to working with our new financing partners as we continue to drive value for our customers and shareholders.”

Piper Jaffray served as the financial advisor and lead placement agent for Otelco.

The new debt will refinance the company’s existing bank-syndicated credit facility, which will mature on 30 April. The existing credit agreement was lead arranged by Antares Capital, the mid-market lender that was bought by CPPIB from GE Capital in August.

Antares led the credit facilities that were backed by six banks, Otelco chief financial officer Curtis Garner told PDI. Antares cut some of its TMT group recently and chose to focus exclusively on sponsor-backed transactions.

Otelco is publicly-traded on NASDAQ and does not have a private equity sponsor. The stock was trading at around $6.67 per share on Tuesday. It provides wireline telecommunications services in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont and West Virginia.