Spectradyne Tries to Realign Its Debt Load : Pay TV: The provider of adult channels in hotels also is in merger discussions.


Spectradyne Inc., the company whose adult films every traveling executive prays do not show up on the hotel bill, is doing a lot of its own praying these days.

The leading provider of pay television movies to hotels, which was acquired by investor Marvin Davis last year, is negotiating with its lenders to restructure the company’s finances and reduce its heavy debt load.

The company is also in discussions about merging with Comsat Video Enterprises, one of its major competitors, but officials termed the talks “preliminary” and said no deal has been struck at this time.

Spectradyne is facing a squeeze on its cash flow as growth in its core business--providing mainstream and adult pay-per-view movies to hotel rooms--slows down and the costs of wiring new rooms and acquiring rights to movies continue to rise.


In a quarterly report filed last week with the Securities and Exchange Commission, Spectradyne said its debt repayment schedule has “caused the company to begin a review of alternative capital structures and other means to refinance all or a portion of its existing debt.”

Spectradyne’s $440 million of debt includes $240 million in credit lines from a group of banks led by Wells Fargo, $125 million in reset notes and $75 million in subordinated debentures.

If a deal is reached to merge Spectradyne with CVE, it would be the third change of ownership in as many years for the hotel cable television service.

Davis acquired SPI Holding Inc., Spectradyne’s parent company, in a highly leveraged transaction in which he paid $64.9 million for the common stock and assumed $575 million of Spectradyne’s debt and other obligations.

Davis acquired the common shares from Ft. Worth investor Robert M. Bass, who less than two years earlier had bought the company from its original owners in a leveraged buyout.

The SEC filing also reported that Spectradyne has exhausted its primary bank credit line of $225 million and has already drawn an additional $7 million from a supplemental $15-million line because its cash flow since October, 1987, could not service its debt.

Further, the company said its operating cash flow “fell below expectations” by $720,000 in the first quarter of 1990, which resulted in borrowing an extra $1 million from its supplemental credit facility.

For the first three months of 1990, Spectradyne posted a net loss of $19 million on revenue of $35.4 million. The company generates the majority of its revenue from pay-per-view systems in hotel rooms, but the frequency of hotel guests’ movie orders has been slipping in recent quarters, even though Spectradyne added 108,000 rooms during the first quarter.

“They have had trouble with viewing levels and maintaining their margins,” said James Bolin, a vice president at Goldman, Sachs & Co. in New York. “They haven’t been hitting their targets.”

Bolin and other analysts said Spectradyne is not in imminent financial danger and the basic business of providing cable television to hotels remains stable. A recession, though, could dampen business travel, which in turn would have an impact on hotel occupancy rates and therefore the use of Spectradyne’s service.

In the SEC filing, the company said it expects to borrow an additional $2 million from its supplemental credit line during the second quarter and increase cash flow by cutting costs and trying to get hotel guests to order pay television movies more frequently .

James Boso, president of Richardson, Tex.-based Spectradyne, confirmed that Comsat Video Enterprises executives have met with Davis Co. officials regarding a possible merger. Analysts said CVE could provide an equity infusion that would reduce its debt load.

“At this point, it hasn’t gone anywhere,” Boso said. “There is no proposal on the table.”

He would not comment on recapitalization plans, but said he does not expect to exhaust the remaining $8 million of the company’s $15-million supplemental credit line.

Analysts said Spectradyne could run into trouble next year, however, when it must begin making principal repayment on its senior bank loan, and in 1992-93, when it must begin making cash payments on its reset notes and preferred stock. Until then, payments are made “in kind,” meaning with additional notes or stock.

Spectradyne is available in 670,000 hotel rooms in the United States. Comsat Video Enterprises, its nearest competitor, is available in 300,000 rooms. CVE is estimated to have lost $18 million on revenue of $50 million last year. CVE started as a joint venture between Comsat and Holiday Inns Corp., but Holiday Inns sold out its interest to Comsat in 1987.

Analysts said one of the problems that Spectradyne faces is slower growth because it has already “wired” major hotel chains, including Hilton, Marriot, Sheraton and others with 300 rooms or more. Future growth lies in smaller hotels or new markets such as hospitals or overseas hotels.