Otelco, a wireline telecommunication services provider, has executed new credit facilities totaling $105 million with Cerebus Business Finance. Piper Jaffray served as the exclusive financial advisor and lead placement agent for the company in connection with the new credit facilities.
Cerberus Business Finance will extend a new five-year first lien term loan facility to Otelco in the aggregate principal amount of $85 million and provide a new $5 million revolving credit facility, which will be undrawn at the time the term loan is funded.
The first lien term loan bears interest at a rate equal to, at the company’s option, either a reference rate plus an applicable margin equal to 5.50% or a LIBOR rate plus an applicable margin equal to 7.75%, with a 1% LIBOR floor. In addition, NewSpring Mezzanine Capital III will provide a new five and a half year senior subordinated term loan facility in the amount of $15 million.
The senior subordinated term loan bears cash interest at 12% and paid-in-kind interest at 2%. The total borrowings, together with cash on hand, will be used to refinance the company’s existing bank-syndicated credit facility, which is scheduled to mature on April 30, 2016. The company’s existing credit agreement will remain effective until funding occurs under the new credit facilities.
“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 CEO 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.”
All necessary regulatory approvals in connection with the new credit facilities have been received with final funding expected to occur by the end of February. Funding is subject to customary closing conditions.
“Cerberus and NewSpring are knowledgeable and experienced lenders in the telecommunications sector,” Souza said. “We look forward to working with our new financing partners as we continue to drive value for our customers and shareholders.”