Debt and Other Financing Arrangements

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Debt and Other Financing Arrangements

6.    Debt and Other Financing Arrangements

The Company’s debt consists of the following:

	Successor			Predecessor
(dollars in millions)	September 30, 2021			December 31, 2020
Current portion of long-term debt:
Corporate Credit Agreement - Tranche B Term Loan due 2024	$	—		$	6.0
Credit Agreement - Term Loan due 2028		1.5			—
Paniolo Fiber Assets Financing Arrangement		0.5			—
Other financing arrangements		0.9			1.9
Finance lease liabilities		10.1			13.9
Current portion of long-term debt		13.0			21.8
Long-term debt, less current portion:
Receivables Facility		75.1			182.0
Corporate Credit Agreement - Revolving Credit Facility		—			67.0
Credit Agreement - Revolving Credit Facility due 2026		—			—
Credit Agreement - Tranche B Term Loan due 2024		—			580.5
Credit Agreement - Term Loan due 2028		148.5			—
7 1/4% Senior Notes due 2023 (1)		24.3			22.3
7% Senior Notes due 2024 (1)		637.2			625.0
8% Senior Notes due 2025 (1)		365.5			350.0
Various Cincinnati Bell Telephone notes (1)		97.8			87.9
Paniolo Fiber Assets Financing Arrangement		22.4			—
Other financing arrangements		0.5			0.9
Finance lease liabilities		47.1			52.1
		1,418.4			1,967.7
Net unamortized premium (2)		—			1.1
Unamortized note issuance costs (3)		(35.5	)		(18.9	)
Long-term debt, less current portion		1,382.9			1,949.9
Total debt	$	1,395.9		$	1,971.7

(1) As of September 30, 2021, the net carrying amounts of the 7 ¼% Senior Notes due 2023, 7% Senior Notes due 2024, 8% Senior Notes due 2025 and Various Cincinnati Bell Telephone notes included unamortized fair value adjustments related to the Merger of $2.0 million, $12.2 million, $15.5 million and $9.9 million, respectively. Each adjustment is being amortized over the life of the respective notes and is recorded as a reduction of interest expense.  

(2) Net unamortized premium was determined to not meet the definition of an asset as of the Merger Date and was therefore not recognized by the Company in the Successor period.  

(3) Unamortized note issuance costs of $9.3 million were determined to not meet the definition of an asset as of the Merger Date and were therefore not recognized by the Company in the Successor period. As of September 30, 2021, unamortized note issuance costs are associated with the 7% Senior Notes due 2024, 8% Senior Notes due 2025 and Term Loan due 2028 defined below.

The estimated fair value of the Company’s borrowings, was determined using Level 2 inputs within the fair value hierarchy, as described in Note 8. Based on closing or estimated market prices of the Company’s debt, a fair-value step-up of $39.6 million was recorded as of the Merger Date.

Consent Solicitation for 7.000% Senior Notes due 2024 and 8.000% Senior Notes due 2025

On July 2, 2020, the Company announced the successful completion of the consent solicitations with respect to certain proposed amendments to the change of control provisions contained in the (i) indenture, dated as of September 22, 2016 (as supplemented and amended, the “2024 Notes Indenture”) governing its 7.000% Senior Notes due 2024 (the “2024 Notes”) and (ii) indenture, dated as of October 6, 2017 (as supplemented and amended, the “2025 Notes Indenture,” and together with the 2024 Notes Indenture, the “Indentures”) governing its 8.000% Senior Notes due 2025 (the “2025 Notes,” and together with the 2024 Notes, the “Notes”).  

On July 2, 2020, the Company, certain of the Company’s subsidiaries, as guarantors, and Regions Bank, as trustee, entered into supplemental indentures to the Indentures to effectuate the amendments, which became operative substantially concurrently with the consummation of the Merger on September 7, 2021, when the Company paid the consent fees that totaled $3.9 million to the holders of the Notes.  These fees were capitalized as a reduction to the outstanding debt balances as of the Merger Date.

Credit Agreement (effective 2021)

In connection with the Merger Agreement, at the Effective Time (the date on which the Effective Time occurred, the “Closing Date”) the Company entered into a new Credit Agreement (the "Credit Agreement") and terminated the existing Corporate Credit Agreement. The Credit Agreement provides for (i) a five-year $275 million senior secured revolving credit facility, including both a letter of credit subfacility of up to $40 million and a swingline loan subfacility of up to $10 million (the “Revolving Credit Facility due 2026”) and (ii) a seven-year $150 million senior secured term loan facility (the “Term Loan due 2028”). The Revolving Credit Facility due 2026 expires in September 2026, and the Term Loan due 2028 expires in September 2028. Borrowings under the Term Loan due 2028 were used in part to finance a portion of the fees and expenses relating to the acquisition of the Company and the establishment of the Credit Agreement, to refinance existing company indebtedness, and for working capital and general corporate purposes. Borrowings under the Revolving Credit Facility due 2026 may be used to provide ongoing working capital as well as for other general corporate purposes of the Company.  

Borrowings under the Term Loan due 2028 will bear interest, initially, at a rate equal to, at the Company’s option, either:

• a base rate determined by reference to the highest of (i) the Federal Funds Rate (determined for any day as the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System of the United States arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the business day next succeeding such day) plus 1/2 of 1%, (ii) the rate of interest in effect for such day as publicly announced from time to time by Goldman Sachs as its “prime rate” in effect at its principal office in New York City and notified to the Company, and (iii) to the extent ascertainable, the one month Eurocurrency rate plus 1.00%, plus, in any such case, 3.25%; or

• a Eurocurrency rate determined by reference to the London interbank offered rate for dollars for the relevant interest period, adjusted for statutory reserve requirements, plus 4.25%.

From and after the delivery by the Company to the administrative agent for the Credit Agreement of financial statements for the first fiscal quarter ended after the Closing Date, the applicable margin over the base rate or Eurocurrency rate for the Term Loan due 2028 will be in the range of (x) 3.75% and 4.75% (for Eurocurrency loans) and (y) 2.75% and 3.75% (for base rate loans) based on a pricing grid as determined by reference to the applicable Secured Net Leverage Ratio (as defined in the Credit Agreement) for the most recent four fiscal quarter period for which financial statements have been delivered.

The Company incurred deferred financing costs of $32.0 million related to the issuance of the Term Loan due 2028 and capitalized as a reduction to the outstanding debt balances as of the Merger Date. 

Borrowings under the Revolving Credit Facility due 2026 will bear interest, initially, at a rate equal to, at the Company’s option, either:

• a base rate determined by reference to the highest of (i) the Federal Funds Rate (determined for any day as the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System of the United States arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the business day next succeeding such day) plus 1/2 of 1%, (ii) the rate of interest in effect for such day as publicly announced from time to time by Goldman Sachs as its “prime rate” in effect at its principal office in New York City and notified to the Company, and (iii) to the extent ascertainable, the one month Eurocurrency rate plus 1.00%, plus, in any such case, 3.25%; or

• a Eurocurrency rate determined by reference to the London interbank offered rate for dollars for the relevant interest period, adjusted for statutory reserve requirements, plus 4.25%.

From and after the delivery by the Company to the administrative agent for the Credit Agreement of financial statements for the first fiscal quarter ended after the Closing Date, the applicable margin over the base rate or Eurocurrency rate for the Revolving Credit Facility due 2026 will be in the range of (x) 3.75% and 4.25% (for Eurocurrency loans) and (y) 2.75% and 3.25% (for base rate loans) based on a pricing grid as determined by reference to the applicable Secured Net Leverage Ratio for the most recent four fiscal quarter period for which financial statements have been delivered.

The base rate and Eurodollar rate for the Term Loan due 2028 and the Revolving Credit Facility due 2026 (collectively, the “Facilities”) are subject to a 0.00% floor.

In addition, the Company will be required to pay a commitment fee on any unused portion of the Revolving Credit Facility due 2026 at a rate of 0.50% per annum, or, if the Secured Net Leverage Ratio for the most recent four fiscal quarter period for which financial statements have been delivered is equal to or less than 3.25 to 1.00, 0.375% per annum. The Company will also pay customary letter of credit fees, including a fronting fee equal to 0.125% per annum of the dollar equivalent of the maximum amount available to be drawn under all outstanding letters of credit, as well as customary issuance and administration fees. At September 30, 2021, there were no borrowings under the Revolving Credit Facility due 2026, leaving $275.0 million available.

One of the syndicated lenders in the Credit Agreement is a cooperative bank owned by its customers. Annually, this bank distributes patronage in the form of cash and stock in the cooperative based on the Company’s average outstanding loan balance. The Company will recognize the patronage, generally as declared, in “Other (income) expense, net.” The stock component will be recognized at its stated cost basis.

The Company may voluntarily repay and reborrow outstanding loans under the Revolving Credit Facility due 2026 at any time without a premium or a penalty, other than customary “breakage” costs with respect to LIBOR revolving loans.

In addition, certain of our variable rate debt, including debt under the Credit Agreement and the Receivables Facility, uses LIBOR as one of the benchmarks for establishing the rate of interest and may be hedged with LIBOR-based interest rate derivatives. LIBOR is the subject of recent regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to be replaced with a new benchmark in the future or to perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness.

The Company incurred deferred financing costs of $6.1 million related to the issuance of the Revolving Credit Facility due 2026 and capitalized to “Other noncurrent assets” on the Condensed Consolidated Balance Sheets as of the Merger Date. 

In November 2021, the Company entered into an Amendment (the “Amendment No. 1”) to its current Credit Agreement to provide for, among other things, (i) a $125 million upsize to the Revolving Credit Facility, increasing the Revolving Credit Facility to $400 million, (ii) a $350 million incremental increase to its existing Term Loan (the “Incremental Term Loan Increase”), increasing the total existing Term Loan facility to $500 million and (iii) the incurrence of a new tranche of $650 million senior secured term loans (the “Term B-2 Loans”). The proceeds of the Incremental Term Loan Increase and the Term B-2 Loans were deposited into an escrow account and will be used by the Company to satisfy, discharge and redeem in full all of the Company’s existing (x) 7.000% Senior Notes due 2024 (the “2024 Notes”) and (y) 8.000% Senior Notes due 2025 (the “2025 Notes”), and to pay fees and expenses in connection with the redemption of the 2024 Notes and the 2025 Notes. The Term B-2 Loans mature in November 2028. The Amendment No. 1 also extended the maturity of the Term Loans (including the Incremental Term Loan Increase) to November 2028 and reduced the interest applicable to the Term Loans and the Revolving Credit Facility.

Guarantors and Security Interests, Credit Agreement

All obligations under the Facilities are unconditionally guaranteed by the direct parent of the Company and each of the existing and future direct and indirect material, wholly-owned domestic subsidiaries of the Company, subject to certain exceptions (including for Cincinnati Bell Funding LLC, Cincinnati Bell Funding Canada Ltd. (and any other similar special purpose receivables financing subsidiary), the Company's joint ventures, subsidiaries prohibited by applicable law or contractual obligation from becoming guarantors, immaterial subsidiaries, unrestricted subsidiaries, foreign subsidiaries, and other customary exceptions as more fully described in the Credit Agreement.  Obligations outstanding under the Credit Agreement are secured by perfected first priority pledges of and security interests in (i) the equity interests of the Company held by its direct parent and (ii) substantially all of the assets of the Company and each subsidiary guarantor (subject to customary exceptions as more fully described in the Credit Agreement), including equity interests of each subsidiary guarantor under the Credit Agreement.

Corporate Credit Agreement (effective 2017)

In connection with the Merger Agreement, at the Effective Time, the outstanding loans under the Corporate Credit Agreement, dated as of October 2, 2017, were paid in full together with accrued interest and unpaid fees. As a result of the Company terminating the Corporate Credit Agreement, certain previously deferred costs and unamortized discount associated with the Corporate Credit Agreement’s Revolving Credit Facility and Tranche B Term Loan due 2024 were written off in the Predecessor period. The loss on extinguishment of debt associated with the transaction was $10.7 million.

Paniolo Fiber Assets Financing

In connection with the Paniolo Acquisition in the third quarter of 2021, the Company’s wholly-owned subsidiary, Hawaiian Telcom Inc. (“HTI”), entered into a purchase money financing agreement to finance a portion of the Paniolo Acquisition. The Paniolo fiber assets financing arrangement provides for a five-year $23.0 million loan secured by the Paniolo assets acquired in the transaction. Borrowings under the Paniolo fiber assets financing arrangement bear interest at a rate per annum equal to LIBOR plus 3.0%. The Company guarantees HTI’s borrowings under the Paniolo fiber assets financing arrangement.

Accounts Receivable Securitization Facility

As of September 30, 2021, the Company had $75.1 million in borrowings and $14.8 million of letters of credit outstanding under the accounts receivable securitization facility ("Receivables Facility”), leaving $125.1 million remaining availability on the total borrowing capacity of $215.0 million. In the second quarter of 2021, the Company executed amendments to its Receivables Facility, which replaced, amended and added certain provisions and definitions to increase the credit availability and renew the facility. The amendments extended the facility’s renewal date until June 2023 and the facility’s termination date to June 2024. The maximum borrowing limit for loans and letters of credit under the Receivables Facility was increased from $200.0 million to $215.0 million in the aggregate. The available borrowing capacity is calculated monthly based on the quantity and quality of outstanding accounts receivable, and thus may be lower than the maximum borrowing limit. In addition, the amendments removed the provision that the LIBOR rate for the Receivables Facility may not fall below 0.75%.

Under the Receivables Facility, certain U.S. and Canadian subsidiaries, as originators, sell their respective trade receivables on a continuous basis to Cincinnati Bell Funding LLC (“CBF”) or Cincinnati Bell Funding Canada Ltd. ("CBFC"), wholly-owned consolidated subsidiaries of the Company. Although CBF and CBFC are wholly-owned consolidated subsidiaries of the Company, CBF and CBFC are legally separate from the Company and each of the Company’s other subsidiaries. Upon and after the sale or contribution of the accounts receivable to CBF or CBFC, such accounts receivable are legally assets of CBF and CBFC and, as such, are not available to creditors of other subsidiaries or the parent company. The Receivables Facility includes an option for CBF to sell, rather than borrow against, certain receivables on a non-recourse basis. As of September 30, 2021, the outstanding balance of certain accounts receivable sold, rather than borrowed against, was $3.9 million.