June 29 (Bloomberg) -- Carlyle Group and Providence Equity Partners each will pay $953 million for 27 percent stakes in satellite operator PanAmSat Corp. after losing to Kohlberg, Kravis, Roberts & Co. in bidding for control of the company.

KKR agreed in April to buy Wilton, Connecticut-based PanAmSat from DirecTV Group Inc. and other investors for $23.50 a share, or $3.53 billion. KKR, the world's largest buyout firm, has since agreed to keep a 44 percent stake and let Carlyle and PanAmSat invest, PanAmSat said in filings with the U.S. Securities and Exchange Commission.

Buyout firms including Carlyle, Providence and KKR finance acquisitions with a combination of cash and debt. They are currently under pressure to complete purchases before interest rates rise and make borrowing more expensive, analysts said. PanAmSat is attractive to the buyout firms because its reliable cash flow can help them quickly pay off debt.

PanAmSat ``has a good predictable revenue stream,'' said Thomas Watts, an analyst with SG Cowen & Co. in New York. ``Over the next few years, the company should generate substantial free cash flow.''

Providence spokesman Andrew Cole and Carlyle spokesman Christopher Ullman confirmed the investments, which total about $1.9 billion. KKR spokeswoman Ruth Pachman declined to comment. PanAmSat spokeswoman Kathryn Lancioni didn't immediately return a phone call seeking comment.

PanAmSat shares today fell 3 cents to $23.25 at 4 p.m. in Nasdaq Stock Market composite trading. The stock has risen 7.8 percent this year.

Biggest U.S. Satellite Operator

PanAmSat is the largest U.S. commercial-satellite operator, and its biggest customers are media companies. Television networks including Time Warner Inc.'s HBO, Walt Disney Co.'s ESPN and News Corp.'s Fox use PanAmSat's satellites to transmit programming to local cable systems and broadcast stations.

Carlyle, based in Washington, and Providence, based in Providence, Rhode Island, will each pay $23.50 a share for their respective stakes in PanAmSat, SEC filings say. The company had 150.3 million shares outstanding last month. Carlyle and Providence were part of an investor group that failed to outbid KKR for control of PanAmSat earlier this year, the filings state.

PanAmSat generated $58.1 million in free cash flow in the first quarter, up 26 percent from a year earlier. Free cash flow is profit before depreciation, amortization and some other items and after capital spending. Free cash flow is considered an important measure of a company's ability to pay debt.

KKR Financing

PanAmSat said KKR received a commitment from Citigroup Inc., Credit Suisse First Boston, Bear Stearns Cos. and Lehman Brothers Holdings to provide total financing for the buyout of as much as $4.075 billion.

The financing will include a $1.86 billion seven-year loan, debt-ratings service Standard & Poor's wrote in a note to clients. The loan is likely to be packaged and sold to investors in mid-July.

The financing also includes a five-year revolving credit line of $250 million at 2.5 percentage points more than the London interbank offered rate, or Libor. That's the interest rate banks charge one another for short-term borrowing. Three-month Libor was at 1.6 percent today. Money in a revolving credit line can be borrowed again once it's repaid.

PanAmSat had $1.7 billion in debt at the end of the first quarter. Its credit is rated BB, or two levels below investment grade, by Standard & Poor's. Moody's Investors Service rates PanAmSat's debt Ba3, or three levels below investment grade. The debt-rating services have both said they might lower PanAmSat's ratings on concern about the debt it will take on to finance its acquisition by KKR.

KKR will repurchase $800 million in PanAmSat senior notes that pay 8.5 percent interest and will redeem $275 million of 6.125 percent senior secured notes, PanAmSat said in today's SEC filing.

PanAmSat Executives

PanAmSat executives will remain shareholders after the buyout firms take control of the company. Chief Executive Joseph Wright, Chief Operating Officer James Frownfelter, Chief Financial Officer Michael Inglese and General Counsel James Cuminale will receive new options to buy stock and will be entitled to bonuses totaling $5.7 million for completing the transaction, PanAmSat's filing states.

They've agreed to use at least some of their bonuses to buy PanAmSat stock for $23.50 a share.

DirecTV, the largest U.S. satellite-TV service, is selling its 80.5 percent stake in PanAmSat to raise cash and focus more of its resources on its consumer-television business.

Rupert Murdoch's News Corp. bought a controlling 34 percent stake in DirecTV last year for $6.6 billion in cash and stock. Since then, El Segundo, California-based DirecTV has also agreed to sell its business that makes satellite-TV set-top boxes to Thomson SA for $400 million.

DirecTV also said it will sell Hughes Software Systems, an Indian-based unit that writes software for telecommunication companies, to Flextronics International Ltd. for about $226 million.

To contact the reporter on this story: Adam Steinhauer in San Francisco at asteinhauer@bloomberg.net; Edward Leefeldt in New York at

eleefeldt1@bloomberg.net.

Last Updated: June 29, 2004 19:01 EDT