Chemical Group Lends $9B to TIme Warner as Industry Rides Wave of Mergers in Media

Article excerpt

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. …