First Data continues debt market wheeling, dealing, extends maturities

By Paul Deckelman

New York, Oct. 29 - First Data Corp. continues to carry well over $20 billion of debt on its balance sheet, but it also continues to actively access the capital markets in order to push out its maturities and otherwise give the Atlanta-based electronic transaction processor maximum financial flexibility.

"Continuing to strengthen the company's capital structure and liquidity position paves the way for us to efficiently grow this business" by serving its clients, employees, investors and other stakeholders, Frist Data's chief financial officer, Raymond E. Winborne, declared during Tuesday's conference call following the release of results for the fiscal 2013 third quarter ended Sept. 30.

As of the end of the quarter, he said, the company had $359 million of cash and cash equivalents and $1 billion of available liquidity.

The company's revolving credit facility due 2016 had $1.02 billion of total capacity, with $873 million of availability after deducting $95 million of outstanding borrowings at the quarter's end and $48 million set aside to back letters of credit.

"We've got ample liquidity with cash on hand, our revolving credit facility and cash generated from operations," Winborne asserted.

"We have no covenant issues and have plenty of headroom on our only financial covenant" - the leverage ratio of consolidated senior secured debt as a multiple of consolidated EBITDA. Winborne said that the current 4.23 times ratio is "comfortably under the covenant limit of 6.25 times," although that ceiling was reduced to an even 6 times on Oct. 1.

The CFO said that cash interest payments during the quarter totaled $566 million - about $66 million higher than the year-ago period, which he said was primarily due to the timing of coupon payments following the company's active slate of bond deals earlier in the year. Interest costs were also up from $441 million in the second quarter ended June 30 and from $477 million in the first quarter ended March 30, although First Data projects that interest costs will drop by around 50% during the current fourth quarter ending Dec. 31, estimating them at $285 million. Using the current capital structure and forward curves, First Data estimates total cash interest payments of $1.8 billion in both 2013 and 2014.

The company has a weighted average interest rate of 8% across its complex debt structure, with 83% of its debt fixed-rate or swapped to fixed-rate, "providing a measure of certainty as interest rates begin to rise."

Taking out the 2016 notes

Winborne touted the company's most recent foray into the capital markets, announced in mid-October, when it unveiled plans to refinance all of roughly $2 billion of outstanding 11½% senior payment-in-kind notes due 2016 issued at the parent First Data Holdings Inc. level. Under the terms of the plan, the existing noteholders will receive $300 million of cash and $1.4 billion of new 14½% senior unsecured PIK notes due 2019.

"The $300 million in cash is fresh capital from existing shareholders in the form of a new convertible preferred equity," Winborne pointed out.

"This agreement preserves the integrity of the operating company capital structure and doesn't result in any change in cash interest payments given the new notes continue to be PIK. This is a significant step forward with the capital structure. We've now effectively addressed, amended or extended the majority of the debt maturities that originated in 2007."

In fact, he said, the company has now refinanced over $21 billion of debt maturities since August 2010.

"We've dramatically improved our maturity ladder and our liquidity profile."

A busy slate of debt deals

The transaction for the 11½% PIK notes is just the latest in a series of debt deals that the company has done this year in order to take out older, relatively short-maturity debt.

It has visited the junk bond market three times so far this year, first pricing a quick-to-market $785 million of 11¼% senior notes due 2021 at par on Jan. 30. Proceeds from that deal were used to repurchase its $748.43 million of outstanding 10.55% senior PIK notes due 2015, first via a February tender offer that saw holders submit $412 million of the notes for purchase. The company then redeemed the remaining outstanding notes on March 1.

First Data priced a quickly shopped $850 million of 10 5/8% senior notes due 2021 at par on March 26. The deal was upsized from $500 million originally. Proceeds were used to tender for its $783.5 million 9 7/8% senior notes due 2015.

The company paid another return visit to Junkbondland on May 15, when it priced $750 million 11¾% senior notes due 2021 at par. The drive-by deal was upsized from an originally shopped $500 million. It used the proceeds from the offering to redeem a portion of the company's outstanding 11¼% senior subordinated notes due 2016

As of Sept. 30, the capital structure included $1.75 billion of the latter notes still outstanding.

During the question-and-answer portion of the conference call following Winborne's formal presentation, an analyst suggested that the deal announced to refinance the 11½% PIK notes due 2015 would "remove the last obstacle for people to consider potentially extending the maturities on the 11¼% subordinated notes" and asked whether such a possibility "is on the radar screen."

Winborne answered that "obviously, we continually look at the capital structure. It's a weekly conversation for me. We watch how the bonds in the structure are trading. It's all trading pretty well right now, and I think you can just look to the past in what we do" - an apparent reference to the three bond deals this year and others that took place last year, where the proceeds were then used to take out some older series of notes.

"We're always balancing the cash interest costs as well as looking opportunistically how we can execute in the market and get the best deal for us. So that's what we'll continue to use. It's been successful for the last three years, and I think we'll stick to that plan as we move forward."

Aside from the bond deals, First Data was also active in the bank debt market. In late January, it launched a $258 million first-lien add-on term loan due 2018, pricing it at 500 basis points over Libor.

It went back to the market in April, re-pricing several tranches of term loan debt due in 2017 and 2018 at 400 bps over Libor, a 100 bps reduction from their earlier interest rate levels.

Revolver capacity adequate

One of the traders noted that during the quarter, First Data had allowed about $500 million of revolver commitments to expire, reducing the total capacity of the facility from over $1.5 billion at June 30 to just over $1 billion on Sept. 30.

Winborne replied that "I'm absolutely comfortable with $1 billion."

He said, "We've never come close to borrowing anything close to the capacity of that revolver. We do have the flexibility to go back and add to that at some point in time if we think it's appropriate - but given the business model we've got today and the cash flow the way it's rolling, I don't see a need to do that right now."

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