Gleason Firm May Buy Galaxy Parts

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Troubled Galaxy Telecom Inc., still trying to renegotiate loans due its creditors and bondholders, has signed two separate letters of intent to sell off a total of 32,000 subscribers, according to documents filed with the Securities and Exchange Commission.

Galaxy has already been through three failed attempts to sell all of its cable operations and its 123,000 subscribers. The most recent LOI, reached on Sept. 2, is with a company called CableDirect LLC, which is affiliated with Galaxy's founders, the Gleason family.

According to its quarterly financial report, Galaxy said it would exchange systems with 26,429 subscribers for $26.4 million in cash and $6.6 million in equity in CableDirect. A separate deal with DirecTV Inc. reseller Pegasus Communications Corp. would have Galaxy sell another 6,300 subscribers at an undisclosed price.

Given the size of the CableDirect deal, those Galaxy subscribers are valued at about $1,248 per subscriber.

UBS Warburg LLC high-yield cable analyst Aryeh Bourkoff had earlier placed a balance sheet value of $1,200 per subscriber on the Galaxy properties-basically its total debt divided by the number of customers-but said the market value is more like $700 per subscriber.

Galaxy president James Gleason said in an interview that CableDirect plans to have about 100,000 subscribers, including the 26,429 customers from the Galaxy deal and those from other operators.

Gleason revealed little detail on CableDirect. But he did say the Gleason family would be among the new company's owners and that the new operator has several deals pending. He declined to say what would happen to Galaxy once CableDirect launches.

Gleason also declined to reveal where CableDirect is getting its money.

Money hasn't come easily to Galaxy, which earlier this month disclosed it was negotiating with certain lenders to replace a $28 million senior credit facility that comes due Dec. 31. Galaxy said it was seeking a $45 million credit facility to replace the old one.

The new credit line would be used to pay overdue interest and accrued interest on $120 million in bonds.

If that new funding cannot be obtained-and bondholders deem the debt immediately due and payable-Galaxy could be forced into a "quick sale of its assets or partnership interests, or the company could be forced into bankruptcy," Galaxy said.

The MSO has been on the block for more than a year, and was unable to close three other potential deals that would have given it new owners. In January, Adelphia Communications Corp. let a letter of intent to purchase Galaxy expire after the two companies could not agree on terms, according to sources.

In March, Classic Communications Inc. also let an LOI expire, according to SEC documents.

Negotiations to sell the systems to Houston-based start-up Mallard Cablevision LLC broke off in October, after the two companies could not reach a deal.

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