Pinnacle One $810MM Issu Of Sr Sec Notes Rtd `BBB-' By Fitch.Business Editors
NEW YORK--(BUSINESS WIRE)--Aug. 11, 2000
Fitch has assigned a `BBB-' credit rating to Pinnacle One Partners, LP/Pinnacle I, Inc.'s (Pinnacle One) $810 million issuance of 8.83% senior secured notes (notes) due 2004, issued and sold under Rule 144A Rule 144A
A Securities & Exchange Commission rule modifying a two-year holding period requirement on privately placed securities to permit qualified institutional buyers to trade these positions among themselves. .
Proceeds will be used to distribute cash to TXU TXU Texas Utilities (Electric and Gas Company)
TXU Transmitter Unit Corp. (TXU) and fund an overfund account.
The support for the rating comes from an overfund account (pre-funded interest) and equity commitment from TXU. The overfund account will be invested in TXU debt securities (rated `BBB'), with payments used to service interest to noteholders. Fitch considers the cash flow stream to repay interest representative of a `BBB' credit profile. Payment of principal relies on the remarketing of TXU's mandatorily convertible preference securities. Fitch currently rates TXU's preference securities `BBB-'.
TXU Corp., through its wholly owned subsidiary Wholly Owned Subsidiary
A subsidiary whose parent company owns 100% of its common stock.
In other words, the parent company owns the company outright and there are no minority owners. TXU Communications (TXUC), is entering into a joint venture with a third-party investor to monetize its telecommunications investments. The new joint venture (Pinnacle One) will be a special-purpose Delaware-limited partnership, formed exclusively for the purpose of this transaction and restricted to activities of only holding its interests in TXU Communications Ventures (AssetCo) and an Overfund Trust.
The monetization of telecom assets will be funded through an $810 million issuance of senior secured notes backed by an equity commitment in the form of mandatorily convertible preference stock from TXU Corp. and a $150 million contribution from a third-party investor in exchange for a 50 percent ownership interest (Class A Common Equity Interest) in Pinnacle One. Meanwhile, TXU (through TXUC) will contribute telecommunication assets with a current market value of approximately $760 million to Pinnacle One in exchange for a cash distribution of approximately $600 million and a 50 percent equity interest (Class B). The remaining capital raised will be earmarked to pre-funded interest ($337 million) and pay transaction costs Transaction Costs
Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). . These proceeds will be invested in TXU debt securities or higher- rated government securities, with semi-annual amortizing payments used to service interest to noteholders and the preferred yield to Class A interest holders (investor).
While multiple principal repayment sources are available, such as an Initial Public Offering (IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. ), the sale of AssetCo or the sale of Pinnacle One's equity, noteholders should view TXU's support and equity commitment as the fundamental components of this transaction.
Upon a Note Trigger Event and subject to certain standstill periods, the Share Trustee will cause the remarketing of TXU Mandatorily Convertible Preference Stock on terms that are designed to generate an amount sufficient to redeem the notes in full. In the event that the issuance of the preference securities yields less than $810 million, under the Share Settlement Agreement, TXU is required to deliver additional shares until at least $810 million has been raised. If TXU cannot or does not deliver on this obligation, then the difference between $810 million and the amount raised becomes a payment obligation to TXU. This obligation would represent a general unsecured claim of TXU.
The issuance of additional shares to make noteholders whole in a downside scenario includes the following trigger events: an event of default on the Pinnacle One notes occurs and notes are accelerated; 120 days prior to maturity on Pinnacle One notes if amounts sufficient for 100 percent principal repayment have not been received by the trustee as a result of the sale of TXU equity or other equity (which may include the mandatorily convertible preference stock); downgrade Downgrade
A negative change in the rating of a security.
For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. of TXU's senior unsecured debt Unsecured debt
Debt that does not identify specific assets that the debtholder is entitled to in case of default. below `BB+/ Ba1' by Fitch, S&P or Moody's; and a decline in TXU's stock price by 30 percent over three consecutive days prior to the date of pricing of the notes (based on the average ten day closing price).
Additional security for the notes is in the form of TXU's telecom portfolio (equity interest in AssetCo). If an event of default occurs and notes are accelerated and a 120-day standstill period has passed, at the direction of at least 25% of the then outstanding principal amount of the notes, Pinnacle One noteholders may force the sale of the telecommunications assets. Importantly, the ultimate net proceeds Net Proceeds
The amount received after all costs are deducted from the sale of a piece of property or security.
In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). from the sale will vary depending on the price received less any debt obligations held at the operating companies operating company
A business that engages in transactions with outsiders. (under AssetCo, including the revolver). Initially, TXU will act as a lender to assist with the telecom growth strategy, establishing a $200 million revolver (between TXU and AssetCo) to fund working capital needs, capital expenditures and any modest acquisitions.
This transaction provides TXU with an efficient vehicle to monetize its telecom portfolio, effectively accelerate the process for capital redeployment re·de·ploy
tr.v. re·de·ployed, re·de·ploy·ing, re·de·ploys
1. To move (military forces) from one combat zone to another.
2. and de-consolidate TXUC, while maintaining flexibility for future telecom growth. Besides supporting TXU's telecommunications growth strategy, the joint venture financing structure provides a modest enhancement to the credit quality of TXU. Proceeds from this issuance (Pinnacle One) will be used to reduce TXU's outstandings under its commercial paper program, thus improving short-term financial flexibility and lowering debt levels (reducing debt/capital ratio by 1 percent to approximately 61 percent). Fitch does not expect the success/failure of TXU's telecommunication activities to materially impact TXU's consolidated credit quality. Currently, the telecommunication business represents a small portion of TXU's asset portfolio and provides minimal contribution to consolidated cash flows.
TXU is a holding company whose credit support is primarily derived from the strong cash flow and healthy credit profile of its subsidiaries TXU Electric (rated `A-' on a senior secured basis) and TXU Europe (rated `BBB BBB
A medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability to pay interest and repay principal. However, adverse developments are more likely to impair this ability than would be the case for bonds rated A and above. +' on a senior unsecured basis). Other strengths include a geographically diverse mix of utilities businesses, more than $40 billion in assets globally, and substantial customer franchises in Texas, UK and Australia. While TXU's capital structure has been stable over the last two years, parent company leverage and consolidated financial ratios are weaker than other `BBB' rated peers.
TXU currently provides telecommunications services In telecommunication, the term telecommunications service has the following meanings:
1. Any service provided by a telecommunication provider.
2. , which include telephone, telecom and transport businesses, through its wholly owned subsidiary, TXUC. Services being offered by TXUC include local, long distance, cellular, paging, Internet access See how to access the Internet. , web hosting Making a Web site available on the Internet. Many ISPs host a few personal Web pages for an individual at no additional cost above the monthly service fee, but the address is subordinate to the ISP; for example, www.friendlyisp.com/pat_smith. and development, and network and data services. Additionally, TXUC leases out capacity on its fiber-optic network to other communications carriers as well as TXU. Management believes the company is well positioned to capitalize on Cap´i`tal`ize on`
v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. telecommunication growth opportunities specifically in Texas. One of the strategies the company is pursuing is to leverage the significant customer base and name recognition associated with the energy business (sister companies). This relationship should provide TXUC with many cross-selling opportunities including the bundling of energy and telecom services. TXUC expects its growth in Texas to be diversified, with a focus on building the transport and telecom businesses. TXUC plans to build customer share in the top 20 Texas markets, with heavy emphasis on small-to-medium business customers.
Based on current industry multiples, the business (whose primary operations consist of two incumbent local exchange carriers ILEC, short for incumbent local exchange carrier, is a local telephone company in the United States that was in existence at the time of the break up of AT&T into the Regional Bell Operating Companies (RBOCs) also known as the "Baby Bells". and a CLEC (Competitive Local Exchange Carrier) An organization offering local telephone service that is not one of the traditional telephone companies. The Telecommunications Act of 1996 allowed competition to the incumbent telcos (ILECs), enabling new companies (CLECs) ) has an implied equity market valuation of approximately $760 million. TXU anticipates that this business will experience a significant increase of market value over the next few years as its competitive communications business grows.
Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA IBCA International Braille Chess Association
IBCA Institute of Burial and Cremation Administration
IBCA Integrated Business Communications Alliance
IBCA International Barbeque Cookers Association
IBCA Department of Interior Board of Contract Appeals and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Corporates, Structured Finance, Insurance, Sovereigns and Public Finance Markets worldwide.