Telx operates more than a dozen facilities in North America where multiple customers can house network, server and storage equipment. They also can physically connect and share data with other providers at these colocation centers, reducing costs and complexity. The company was formed in 2000 to serve carriers at 60 Hudson Street, a building housing hundreds of telecommunication companies in New York City. In 2006, Telx was acquired by GI Partners, a private equity firm with more than $2 billion under management.
- Challenge
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After surviving a fundamental shift in the telecommunications industry in the early 2000s, Telx has thrived in a competitive and fast-paced business environment. The company has grown both organically and through acquisitions. In 2006, Telx acquired the “Meet Me Room” facilities, customers and operations in 10 buildings owned and managed by Digital Realty Trust.
In 2007, Telx executives decided to refinance part of the debt they took on to fuel their rapid growth and expansion. The company wanted to avoid using buildings it acquired in Atlanta as collateral. Though the real estate had been appraised at more than $100 million, it was already financed at an attractive interest rate, so Telx preferred to secure its refinancing package with other assets, if possible.
Many conventional lenders were interested in the company’s business, but most insisted on leveraging the appraised value of the Atlanta facilities to secure the loan. Telx needed a financial services partner with extensive telecommunications experience and the creativity to develop a solution using other company assets as collateral.
- Solution
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Telx executives were introduced to industry financing specialists from CIT Communications, Media and Entertainment by GI Partners, which had an ongoing relationship with CIT. The two companies met to discuss a potential solution in early 2007.
Because of their extensive lending experience in the communications sector, CIT representatives recognized the strength of the Telx business model, its seasoned management team and long-term positive trends affecting its served market. CIT proposed a solution that met all the requirements of Telx management without using the company’s Atlanta real estate holdings as security.
CIT proposed a $31 million loan to refinance existing debt, with terms that give Telx increased flexibility as the company’s cash flow position changes. To secure the loan, CIT recognized the value of the long-term lease Telx holds at one of the premier high-technology addresses in New York, as well as leases at locations in other key U.S. cities.
Extensive knowledge of New York real estate values enabled CIT to exclude the Telx property in Atlanta from the financing collateral package. CIT protected its interests with a unique lease-escrow payment feature to secure the loan.
- Results
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To meet customer requirements, CIT moved quickly to underwrite the transaction and provide funds to Telx on an accelerated schedule, closing the transaction on Sept. 29, 2007, despite a challenging credit environment.
By refinancing its debt, Telx improved its balance sheet, reduced financing costs and enhanced financial flexibility to help fuel the company’s future growth. As a company that offers the richest connectivity and dedicated services in the most secure and reliable Meet Me Room and ColoXchange centers, Telx has expanded its reach with facilities in Charlotte, N.C.; Chicago; Dallas; Los Angeles; Miami; Phoenix; San Francisco; Santa Clara, Calif.; and Weehawken, N.J.; as well as New York and Atlanta.
Industry forecasts bode well for the continued growth and success of Telx, as information technologies continue to advance and customers rely on the company to provide ever-increasing levels of interconnect capabilities.
