SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2021

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

15. SUBSEQUENT EVENTS

Acquisition of Alaska Communications

On July 22, 2021, the Company completed the acquisition of Alaska Communications Systems Group, Inc. (“Alaska Communications”), a publicly listed company, for approximately $340 million on cash, (the “Alaska Transaction”). Alaska Communications provides broadband telecommunication and managed information technology services to customers in the State of Alaska and beyond using its statewide and interstate telecommunications network. The Company completed the acquisition to enter a new market with similar characteristics to its existing operations.

In conjunction with the Alaska Transaction, the Company entered into an agreement with affiliates and investment funds managed by Freedom 3 Capital, LLC as well as other institutional investors (collectively the “Freedom 3 Investors”). The Freedom 3 Investors contributed approximately $70 million in conjunction with the Alaska Transaction (the “Freedom 3 Investment”). The Freedom 3 Investment consists of common and preferred equity instruments in a subsidiary of the Company which holds the ownership of Alaska Communications. The Company will account for the Freedom 3 Investment as mezzanine equity in its consolidated financial statements. The Company also entered into a financing transaction drawing $220 million on a new credit facility to complete the Alaska Transaction. As a result of the Alaska Transaction, the Company owns approximately 52% of the common equity of Alaska Communications and controls its operations and management. The Company incurred $2.4 million of transaction costs in conjunction with the Alaska Transaction, of which $1.5 million was incurred during the six months ended June 30, 2021. Beginning on July 22, 2021, the results of the Alaska Transaction will be included in the Company’s US Telecom segment.

Due to the limited time since the acquisition date, and the size and complexity of the Alaska Transaction, the accounting for the business combination is not yet complete. The Company is not able to provide the valuation of certain components of consideration transferred or provide the allocation of consideration paid to the assets acquired or liabilities assumed. Supplemental pro forma revenue and earnings of the combined company will be determined on the completion of the business combination accounting and allocation of consideration.

Alaska Financing

On July 22, 2021, Alaska Communications entered into a Credit Agreement with Fifth Third Bank, National Association, as Administrative Agent, and the lenders party thereto to provide debt financing in the form of a revolving facility in an aggregate amount at any one time outstanding not to exceed $35.0 million (the “Alaska Revolving Facility”) and an initial term loan facility in the aggregate amount not to exceed $210.0 million (the “Alaska Credit Facility”). In connection with the Alaska Transaction, Alaska Communications drew $220 million from the new Alaska Credit Facility in the amounts of $210.0 million under the term loan and $10.0 million under the Alaska Revolving Facility. The Alaska Credit Facility also provides for incremental term loans up to an aggregate principal amount of the greater of $70.0 million and Alaska Communications’ trailing twelve month Consolidated EBITDA (as defined in the Alaska Credit Facility).

The key terms and conditions of the Alaska Credit Facility include the following:

● Amounts outstanding bear an interest rate of LIBOR, or a LIBOR replacement rate as applicable, plus a margin ranging from 3.00% to 4.00% based on Alaska Communications’ Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) or an alternate base rate may be selected at a margin that is 1% lower than the counterpart LIBOR margin;

● Principal payments are due quarterly commencing in the fourth quarter of 2023 in quarterly amounts as follows: from the fourth quarter of 2023 through the third quarter of 2024, $1,312,500; and from the fourth quarter of 2024 through the third quarter of 2026, $2,625,000. The remaining unpaid balance is due on, and the final maturity date is, July 22, 2026;

● Alaska Communications is required to maintain financial ratios subsequent to the closing of the Alaska Transaction, as defined in the Alaska Credit Facility, including (a) a maximum Consolidated Net Total Leverage Ratio of 4.00:1.00, stepping down to 3.75:1.00 beginning with the second quarter of 2024; and (b) a minimum Consolidated Fixed Charge Coverage Ratio of not less than 1.25:1.00; and

● The Alaska Credit Facility is non-recourse to the Company and is secured by substantially all of the personal property and certain material real property owned by Alaska Communications.

On July 20, 2021, the Company drew $73.0 million in proceeds from its 2019 CoBank Credit Facility to pay a portion of the purchase price of the Alaska Transaction. For more information on the 2019 CoBank Credit Facility, see Note 8 to the Unaudited Condensed Consolidated Financial Statements included in this Report.