AOL Time Warner's Got a Refinancing
Apr 02, 2002 (TheStreet.com via COMTEX) -- With commercial paper becoming as scarce as street vendors selling nonpirated music on the streets of Manhattan, AOL Time Warner is refinancing $4 billion in short-term debt with a series of bonds maturing in three to 30 years.
But an analyst suggests that the media conglomerate's move is motivated less by a shrinking market for commercial paper than by a sound strategy of locking in interest rates at relatively low levels.
AOL Time Warner's battered shares rose 35 cents Tuesday to close at $23.62.
The company's bond sale, scheduled for Wednesday, will replace $4 billion of bank debt and short-maturity commercial paper with a commensurate amount of debt with an average maturity of roughly 11 years, according to Patricia Lee, an analyst at the independent credit research firm CreditSights.
The company, which had $22.8 billion in long term debt as of Dec. 31, reported $1.4 billion in net interest expense for 2001.
"This is a prudent financial strategy for them," says Lee, saying the company is taking advantage of investor interest in the company as a defensive core media holding by fixing coupons at relatively low interest rates. That makes sense, says Lee, since rates will rise if the economy recovers. "The danger now is [for borrowers] to be caught in the short end of the [debt maturity] spectrum," she says.
The transaction will also benefit the company by giving it greater flexibility to access bank debt and the commercial paper market for possible transactions later this year, such as a purchase of AT&T's interest in AOL Time Warner's Time Warner Entertainment subsidiary.
Investors have been antsy about the creditworthiness of numerous companies recently, with Tyco and Qwest getting cut out of the commercial paper market, and bond guru Bill Gross lambasting GE for its overreliance on commercial paper unsecured by bank debt.
By George Mannes
Senior Writer
(C) 1996 - 2002 TheStreet.com, Inc. All rights reserved.
