Comcast Lines Up Much of Deal Funding

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Comcast Corp. executives said last week the pending purchase of AT&T Broadband was on track, with about 80 percent of the required funding assembled.

Comcast has already secured from five different banks about $10 billion of the $11 billion to $14 billion needed to service AT&T Broadband's debt and handle capital issues, said Comcast executive vice president and treasurer John Alchin, speaking at the Bear Stearns & Co. Media, Entertainment & Telecommunications conference March 4 in Palm Beach, Fla.

The merger is expected to close this year.

He said that although Comcast may seek more loans from other lenders, it could also tap a $4.5-billion "liquidity cushion" in existing bank facilities.

"We feel very good about the fact that we've been able to put this in place in a marketplace that has been relatively tight for new issuers," Alchin said.

Three lenders advised on the Broadband deal: Morgan Stanley Dean Witter & Co., Merrill Lynch & Co. and J.P. Morgan Chase & Co. The others were Salomon Smith Barney Inc. and Banc of America Securities.

SunTrust Robinson Humphrey cable analyst Gary Farber said any tightness in bank financing has mostly been because of general economic conditions, rather than a reluctance to loan money to cable.

"If the banks have been less receptive, it's a function of the industries that surround cable," Farber said. "There have been ebbs and flows in the stocks, which have reflected concerns over the whole telecom-related space. There may have been concerns, but they seem over the past couple of years to be generally unfounded because pretty much everybody has had pretty good access" to bank capital.

When Comcast and AT&T Broadband announced their $72 billion merger in December, Comcast agreed to assume about $25 billion in AT&T Broadband debt, including a $5 billion convertible note owned by Microsoft Corp. which will be converted to equity once the merger is completed.

Comcast cable president Steve Burke focused on operational issues, and tried to ease any analyst fears concerning AT&T Broadband's cash-flow margin (cash flow as a percentage of revenue), which has lagged behind peers.

He pointed to Comcast's success in Ann Arbor and Royal Oaks, Mich., former AT&T markets where cash-flow margins grew by 10 percentage points the first year and should reach 38.2 percent and 41 percent, respectively, by the end of 2002.

Comcast systems run at about 42 percent cash-flow margins.

"We have 200 executives who run our systems," Burke said. "Many of those people have been through five, seven or 10 different integrations over the past five years. We know how to do it."

Earlier, AT&T Broadband chief operating officer Ron Cooper reiterated the company's plan to decentralize management. Earlier this year the company said it would lay off about 500 workers at its Denver headquarters in favor of pushing more responsibility out into the field. Cooper said the decentralization process is not over.

Certain functions will remain centralized — mainly those operations that have significant scale in one place, like procurement and information technology management; those that have a need for consistency, like brand management and financial reporting; and those that have unique resources or expertise, like research and development.

Cooper also praised cable telephony, which he said would reach cash-flow break-even — the point at which revenue covers expenses — in the first quarter, nine months ahead of schedule.

He restated plans to revamp digital service, adding new digital tiers, reconfiguring programming in some existing tiers, reestablishing pricing to reflect programming changes and rethinking equipment pricing.

He said an announcement regarding digital would come in 30 to 60 days.

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