CommScope fields advisory pitches with capital structure under pressure
Telecom infrastructure provider CommScope recently took pitches from financial advisors as the company faces looming debt maturities, said two sources familiar with the matter.
Moelis & Co. and Evercore are among the firms in contention for the mandate, which could entail asset disposals and balance sheet work, said one of the sources and an additional source familiar with the matter. No decision has been made yet to engage an advisor, added a fourth source familiar with the matter.
Secured holders recently sent a proposal to the company to address its near-term maturities. The proposal is expected to be tweaked depending on how much debt the company can pay off with the potential proceeds from asset sales.
Early last week, CommScope released preliminary 3Q23 earnings that came in well below expectations and spooked the market, sending the company’s shares and more than USD 9bn in debt sharply lower.
For their part, a group of secured creditors is working with Gibson Dunn and PJT. Unsecured creditors tapped Akin Gump for legal advice and Houlihan Lokey has been circling for a financial advisory role. Latham & Watkins has been providing legal advice to CommScope.
CommScope released full 3Q23 results on Thursday and did not provide an update on its plans to address its 2025 and 2026 maturities, disappointing investors who had been expecting the company would announce a deal with creditors, said a buysider and trader.
“While we remain impressed by the company’s ability to support margins in the challenged demand backdrop, visibility towards delevering continues to overwhelm valuation – and management did not provide incremental detail towards the various efforts being pursued to refinance near term maturities,” wrote Morgan Stanley analysts in a research note published yesterday.
CEO Charles Treadway told investors the company believes it has “several alternatives” to address the maturities, including using cash, ABL availability, senior secured debt basket and proceeds from asset sales.
The company reportedly is exploring the sale of assets, including its valuable Ruckus Wireless business, which by some estimates could fetch USD 3.2bn-USD 4bn.
But there are concerns that covenants and weakening earnings could leave a valuation leakage in a liability-management exercise, according to a sellsider. One option could be to move Ruckus to an unrestricted subsidiary for a priming deal with the USD 1.3bn unsecured notes due 2025, the analyst added.
CommScope this month announced plans to sell its Home Networks Business to Vantiva in exchange for a 25% equity stake in the buyer and a potential USD 100m earnout. Evercore advised the company on the disposal.
The company reported that net sales declined 33% in 3Q23 from the prior year to USD 1.6bn and adjusted EBITDA declined 28% to USD 249m due to weakness in the company’s Connectivity and Cable Solutions and its Outdoor Wireless Networks units, coupled with reduced capex spending from service providers, according to a company press release. Some investors expect the softer demand environment to persist into the first half of next year, leading to lower EBITDA expectations.
CommScope ended September with USD 1.29bn in liquidity with USD 771m available on its asset-backed revolving credit facility and USD 519m in cash.
Shares traded down further Friday by over 12% to USD 1.38 in midday trading, giving the company a USD 291m market cap.
CommScope’s USD 3.2bn L+325bps term loan due 2026 was quoted today at 87/88.25 compared to quotes at 90.075/90.95 on 27 October, before the preliminary earnings were released, according to Markit.
The company’s USD 1.3bn 6% senior unsecured notes due 2025 traded at 76.25 on Friday, down from trades at 79 on 30 October, according to MarketAxess. The USD 1.5bn 6% senior secured notes due 2026 traded at 85.78.
CommScope, Latham Watkins, Gibson Dunn, Houlihan and PJT did not return requests for comment. Moelis and Evercore declined to comment.