By Scott Moritz
In a federal filing Tuesday, the New York cable giant says it hopes to raise $5 billion in cash through a debt sale that is expected to close Thursday. Proceeds from the sale will help pay for the $10.9 billion planned special dividend going to Time Warner shareholders, according to the filing. Fortune and CNN Money are owned by Time Warner.
The cable shop is selling three notes: $1.5 billion worth of notes with a 6.20% interest rate due in 2013, $2 billion in notes with interest of 6.75% due in 2018 and $1.5 billion in notes carrying an interest rate of 7.30% due in 2038.
Last month, the company announced the terms of its split calling for a juicy one-time dividend of $10.27 a share to Time Warner stakeholders. The bulk of that payment, or $9.26 billion, will go to Time Warner, which holds an 85% stake in the cable unit. After the payment, Time Warner will distribute its stake to Time Warner Cable shareholders.
To make sure the deal happens, Time Warner secured a $9 billion bridge loan from its banks and will tap $2 billion from its credit line for backup financing.
The move continues a plan set in motion after activist Carl Icahn in 2006 pushed Time Warner to break its empire into four pieces. In the Time Warner Cable split up, Time Warner will effectively saddle the cable unit with $10 billion in debt on top of the $13.5 billion on Time Warner Cable’s books. Time Warner Cable expects to raise a total of $9 billion in cash through debt sales. A company representative said he did not know when the company would try to raise the next $4 billion.
The massive dividend gives the parent company new financial flexibility to increase its own dividend or make acquisitions. TWC’s public shareholders get a pile of cash up front to help numb the pain of the heavy debt burden.
The price of independence is high, not only in the form of interest payments. TWC is becoming independent at a time when industry competition just keeps getting tougher. Time Warner Cable faces a new rival in its lucrative New York market as Verizon VZ is set to invade Manhattan with its fiber optic powered video network known as Fios. Time Warner Cable is also committed to spend $550 million on a new WiMax wireless broadband network project headed by Sprint S and Clearwire CLWR .