Cable One Faces 12% Yield to Fund Buyout After Debt Swap Stalls

Cable One Inc. is facing a steep cost to finalize the buyout of a company whose debt it has indicated it may not support when it comes due next year.

The broadband provider is required to purchase the remaining 55% stake in Mega Broadband Investments to satisfy a looming put option held by private equity firm GTCR. JPMorgan Chase & Co. is sounding out potential lenders on a roughly $1 billion loan package to fund this acquisition and to refinance Cable One’s existing maturities, according to people familiar with the matter.

Negotiations on the first-lien debt are centering around a yield of about 12% — among the highest so far this year. Prospective lenders are pushing to include ring-fencing provisions that would keep Cable One and Mega Broadband separate, effectively blocking the parent from subsidizing the unit’s heavy debt load, the people said, asking not to be identified discussing a private matter.

Representatives for Cable One didn’t immediately respond to a request for comment. A representative for JPMorgan declined to comment.

The latest financing talks punctuate a tense standoff between Cable One and creditors to Mega Broadband. Last month, JPMorgan pitched those creditors with a debt exchange to fund Cable One’s purchase of the remaining Mega Broadband stake.

But the proposal failed to get much traction and Cable One warned earlier this month that it may scrap the debt exchange entirely. That would leave the existing Mega Broadband debt outstanding “without providing any new credit support from the company, its existing subsidiaries or their respective assets,” Cable One said in a statement.

‘Credit Support’

Cable One’s recent filings “create uncertainty regarding its commitment” to Mega Broadband, S&P Global Ratings wrote in a note this month. “We expect to assess MBI’s ratings on a stand-alone basis until Cable One can establish a track record of credit support” for the firm, its analysts wrote.

Cable One bought 45% of Mega Broadband from GTCR in 2020 when the pandemic suppressed interest rates and forced millions into remote work. Since then, fierce competition and rising rates have depressed cable valuations, with Moody’s Ratings downgrading Cable One to a B2 rating earlier this month, several notches into junk territory.

Proceeds from the new loan package would help fund a roughly $475 million to $495 million payment to GTCR, the Chicago-based private equity firm which exercised its put option in January. The remaining proceeds would then be used to address Cable One’s debt due in 2028 and 2029, which could include a partial paydown or coupon bump as part of an amend-and-extend transaction, the people familiar said.

Cable One had around $3 billion of long-term debt at the end of March, according to a filing, with most of its securities yielding double digits.

Debt Exchange

The proposed debt exchange offered early participating lenders — up to a roughly 50% threshold — a mix of cash alongside new Cable One secured paper split between first-out and second-out loans. But lenders organized into a group which rejected the proposal and swiftly formed a cooperation pact to block the deal. In a June filing, Cable One said just 34% of lenders were participating in the exchange.

Read More: JPMorgan Offers Mega Broadband Creditors Better Early Terms

Since, communication between Cable One and the Mega Broadband creditors has stalled, even after the lender group proposed an alternative debt pitch to Cable One, said some of the people.

A representative for Lazard, which is advising the creditor group, declined to comment. Representatives for Milbank, the group’s legal counsel, didn’t immediately respond to requests for comment.

Cable One also released preliminary second-quarter results this month. The company projected revenue between $346 million and $352 million, a contraction that followed several consecutive second-quarter revenue declines.

Mega Broadband is the parent of Vyve Broadband, which serves smaller and rural US markets. Cable One provides internet, TV and phone service under the Sparklight brand, also focusing on smaller communities.