May 4, 2010 3:37:22 PM EDT
Sorenson bonds plunge further, loans rebound after NECA rate cuts
Bonds and loans backing Sorenson Communications continue to be extremely volatile a day after plunging 20-40 points on news the National Exchange Carrier Association (NECA) cut reimbursement rates to providers of services to the hearing-impaired. The largest reductions were aimed at the biggest providers, which include Sorenson, and are expected to draw heavily on company earnings, given the fixed-cost nature of the businesses, sources said.
Sorenson term debt (L+250) has recovered to 90/91 this afternoon, from 85/88 at today's open and an 81 context yesterday. The loan had been quoted at 98.5/99.5 prior to the announcement.
The bonds bounced, too, but remain at severely distressed levels. Sorenson 10.5% first-lien notes due 2015 traded as low as 46, versus 65/75 markets yesterday and 97/98 before the news. Levels settled in the high 50s this afternoon. The 144A-for-life paper is a sizeable, $735 million issue that was allocated at 98.1 in January via Goldman Sachs and Morgan Stanley.
At time of issue, it was disclosed to potential investors that the reimbursement rates were regularly reviewed and could change on June 30, according to sources. Regardless, the unrated bond deal was received in market with terms at the middle of talk, and proceeds were earmarked to pay down second-lien term debt and a PIK holdco loan, as well as fund a dividend to the sponsor, GTCR Golder Rauner.
There was the issue. Opponents argued the transaction represented a transfer of wealth from the public – phone bill taxes fund the reimbursements – to the private equity firm via the planned equity distribution. And news that the GTCR-controlled firm was leveraging the company for a special payment was not well received in Washington, according to sources.
These types of firms are “not about making people rich,” but are “about providing a public service,” to citizens who are deaf and hearing-impaired, according to an analyst.
The payment formulas and funding estimates for the Interstate Telecommunications Relay Services (TRS) Fund from July 1, 2010 through June 30, 2011 was put up for review on April 30, according to FCC documents. Proposed compensation rates would apply to Speech-to-Speech Services (STS), Captioned Telephone Services (CTS), Internet Protocol (IP) CTS, IP Relay and Video Relay Services (VRS).
The Consumer and Governmental Affairs Bureau is seeking comments as to whether the Commission should adopt NECA’s rates for the 2010-11 period. Comments are due in mid-May, with reply comments due on May 21.
Sorenson Communications, which is controlled by GTCR Golder Rauner, provides video-relay services and equipment for the deaf and hard-of-hearing community. The sponsor took an initial interest in October 2005 and funded an initial dividend with proceeds from the PIK holdco loan in 2008. – Matt Fuller/Krista Giovacco
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