Insurance Company Capital Over Banks

“Two years later, the favor was returned. We got a call from a representative at Teachers Insurance, a longtime lender to TCI that still held warrants on our stock. The representative said that Teachers, Travelers, Equitable Life, John Hancock, and the others would be willing to lend $78 million to TCI, one of the largest loans to the cable industry at the time, at a rate nearly two points cheaper than the banks were offering, with much more flexibility. The insurance companies had seen how consistent our returns were over several years and felt confident to commit to a new line of capital for us. We first flew to New York to finalize the paperwork and celebrated, then quickly called a meeting in Denver to give the news to our banks. I’m sure Bob wanted to tell them all where they could go, but I stepped to the front of the room and said politely, “I’m happy to announce TCI has arranged for alternate financing, so it’s going to be possible for any bank that wants to reduce their exposure to do so on a timely basis.” Then we let the banks know that their interest rates weren’t good enough. “From this day forward, the company is a prime-rate borrower,” I said, meaning TCI deserved lower rates than other companies were getting. Five of the seven banks wanted to stay in, and they rewrote their covenants with more flexible terms and lower borrowing rates.”

“When we were at our limit with our usual suspects of lending, we turned to still more alternative means of financing. One of those was a controversial financier named Michael Milken, who was known for creating a new market for high-yield “junk” bonds. The rise of Milken and the firm Drexel Burnham Lambert created a revolution in deal financing for us. Their agility to buy and price offerings dramatically changed the acquisition game—and saved me incalculable hours in front of clients on road shows. We knew what level of debt and the terms that were available if we had Drexel on our team.”