Comcast Corp. Loans Capital to Carlyle for Exit –

Eight months after acquiring a cable business that serves markets in the Washington, D.C., area and Chicago, The Carlyle Group has entered into a loan agreement that may allow it to cash in its stake and receive a 270% gross IRR on the investment.

However, there’s a catch: Carlyle still needs to remain in the business for the next three to four years.

Last Summer, Carlyle and Austin, Texas-based Prime Cable led a group of investors, which included Union Labor Life Insurance Co., in acquiring Prime Communications LLC. The investor group reached an agreement with county officials from the Washington, D.C., area that forbade the sale of the cable systems for four years, said sources close to the deal.

So Comcast Corp., which wants to expand its holdings in the D.C. market, in July will loan $735 million to Prime Communications in exchange for a 10-year note that is convertible to a 90% interest in the business. Comcast will acquire its stake only after Prime Communications has rebuilt its cable systems to handle telephony service and Internet access. This project should be completed by July 2002, according to a statement from Comcast.

Loan Likely to Make L.P.s Smile

Carlyle may take much of its share of the loan and distribute to its limited partners, said Brian Bailey, a Carlyle vice president. “It is not an exit event,” he said, adding that Comcast will only be a strategic adviser to Prime for the next three to four years. “It’s nice to have a strategic relationship, but the day-to-day management at Prime has not changed.”

While Mr. Bailey said this deal did not mean a liquidity event for Carlyle, he would not say if Prime Communications itself would use the loan. County officials only need to approve a sale of the cable systems and do not need to approve the loan, he added.

Comcast is charging Prime a 6% rate on the loan, and Comcast is not obligated to convert the notes into an equity stake, sources close to the deal said. Comcast, however, cannot convert its loan for less than a 90% stake.

Carlyle’s apparent good fortune is due in large part to the quickly rising multiples in the cable television industry, which have increased because buyers believe they can introduce high-speed Internet and cable telephony to subscribers. Examples of groups willing to pay for cable system providers include The Blackstone Group and TCI Communications, which this month finalized a $1.25 billion buyout of Bresnan Communications (BUYOUTS Feb. 22, p. 1).

Last July, Carlyle and Prime Cable teamed to invest $250 million in equity in a $875 million buyout of Prime Communications, which has systems in Maryland and Virginia, serving 268,000 customers, and in the Chicago area, from SBC Communications.

Carlyle’s recent cable liquidity events extend beyond its investment with Prime. In November, it agreed to sell Genesis Cable Communications, which it acquired in 1996, to Benchmark Communications. Genesis owns cable television systems with 52,000 subscribers mainly in the Southeast.