Time Warner Cable raised $2 billion in new bonds on Tuesday in an effort to delever its balance sheet following its separation from parent company Time Warner earlier this year.
But the second largest cable systems operator still wants to maintain some flexibility and the possibility of returning cash to shareholders.
Time Warner Cable issued $500 million of 3.5 percent notes due 2015 priced to yield 153 basis points over treasuries and $1.5 billion of 5 percent notes due 2020 priced to yield 188 basis points over Treasuries.
The company said it would use the proceeds from the bond deal to repay the remaining outstanding balance of its five-year term loan facility and a portion of the borrowing under its commercial paper program. Some proceeds will also be used for general corporate purposes.
The aggregate principal amount outstanding under the term loan facility was $800 million as of Sept. 30. There was $2.2 billion in borrowings outstanding under the company's commercial paper program at that time. In total, the company had $22.5 billion in debt at the end of the third quarter, including $3 billion in bank debt scheduled to mature in February 2011.
"Time Warner Cable is on track to reach its 3.25 time target leverage level in 1Q10 by our estimates," wrote Patrick Cucinello, an analyst at Citigroup Global Markets, in a report published Tuesday.
In a separate report, Fitch Ratings said that target could be reached in the first half of next year. Time Warner Cable is rated BBB with a stable outlook by Fitch. Its leverage is currently at 3.4 times debt to earnings before interest, taxes, depreciation and amortization as of Sept. 30.
Time Warner Cable generated free cash flow of about $1.5 billion in the first nine months of 2009, reflecting an 18.4 percent year-over-year increase, according to Fitch. The company will use its free cash flow to continue to delever in the first half of 2010.
But the credit ratings agency is also concerned by Time Warner Cable's ability to maintain its relative competitive position given the challenging competitive and economic environment.
Cucinello of Citigroup observed: "While management is committed to retaining investment-grade credit metrics, we expect increased shareholder repatriation, likely in the form of a recurring dividend payment. As such, we expect less improvement to the company's credit metrics going forward."
President and chief executive Glenn Britt recently said at an industry conference that there is "no point in delevering below a certain ratio," according to Cucinello, who added that Time Warner Cable will contemplate shareholder returns once it reaches its target leverage ratio of 3.25 time.