DJ IN THE MONEY: Some Winstar Investors May Lose Big
03 Apr 08:15
By Carol S. Remond
A Dow Jones Newswires Column
(This story was originally published late Monday)
NEW YORK (Dow Jones)--Some big name investors stand to lose millions of
dollars if Winstar Communications Inc. (WCII) heads for the financial
restructuring many think is inevitable.
Not that long ago, Winstar was one of those telecommunication companies whose
stock was on a path to the moon at a time when no one cared about high
leverage.
Now that people seem to worry about things like interest and principal
payments on loans, Winstar's stock price has fallen to earth much in the same
way as the Russian MIR spacecraft - it looks like it's exploding.
The stock closed Monday at 87.5 cents, off about 60%. For the past month, it
has fallen about 90%. It is trading a far cry from the $66 where it changed
hands a year ago.
Of course, big losers in Winstar are individual investors who own the stock.
But there are some very prominent investors who have loaned Winstar money and
have invested in preferred securities - investments that are now worth
significantly less that the redemption amount.
Who are these big names?: Lucent Technologies Inc. (LU), Credit Suisse First
Boston, Welsh, Carson, Anderson & Stowe, Microsoft Corp. (MSFT) and Compaq
Computer Corp. (CPQ).
Current market prices seem to indicate that Winstar's most senior investors,
bank debt holders and bondholders to a lesser extent, expect to share what's
left of Winstar if the company is forced to restructure. That means that very
little if anything will be left for trade credits and preferred share holders.
With about $302.7 million in cash and cash equivalents at the end of
September and another $53.5 million in easily negotiable short-term
investments, Winstar on paper looks like it has enough cash to last through
early next year.
But Winstar's heavy debt load could be the source of its demise. Many are
certain Winstar will be forced soon to restructure its debts, either in or out
of bankruptcy. The company's regulatory filing shows about $3.4 billion in
long-term debt. Winstar paid $95.6 million in quarterly interest on its debt in
the third quarter of 2000.
Right now, even Winstar's most senior investors, the holders of its $1.3
billion bank debt, appear to be very concerned about the future.
At current prices, these creditors expect to lose about 41 cents of each
dollar they loaned to the company. And that's including the fact that Winstar's
bank debt is guaranteed by substantially all of the company's assets.
That alone indicates that investors are putting the value of Winstar's
assets, in the event that the company needs to restructure its obligation, well
below the $2.7 billion in property and equipment listed in the company's third
quarter filing. (In fact, a current price of about 59-cents-on-the dollar seems
to indicate that Winstar's most senior and guaranteed creditors put the total
asset value of the company at about $767 million).
Holders of Winstar's $1.6 billion in publicly traded bonds are also worried.
Current pricing of Winstar's 12.75% $600 million senior notes due 2010
indicates that bondholders expect to lose about 83 cents for each dollar loaned
to the company. The bonds are currently trading at about
17-cents-on-the-dollar, down from 35 cents on Thursday.
All of this means that Lucent could be a big loser. That's because the U.S.
telecom equipment supplier extended a $2 billion vendor credit to Winstar back
in May 2000. Of the $1 billion immediately available, Winstar had drawn $600
million at the end of December.
Lucent's own financial troubles forced the company to draw on a two-year
credit facility agreed to in February, suggesting that much of the $3.8 billion
cash it had available at the end of 2000 has been used.
That has some in the market suggesting that Lucent will be particularity
vigilant with its own exposure to the companies to which it extended credit as
they themselves start facing mounting financial woes.
Credit Suisse First Boston, Welsh, Carson, Anderson & Stowe, Microsoft . and
Compaq may also be faced with large losses if Winstar is unable to find needed
financing.
These companies bought about $1.2 billion worth of convertible preferred
stock through two transactions last year. These shares are redeemable in 2010.
A November regulatory filing by Winstar puts the holding of CSFB, Welsh, Carson
and Microsoft own about 10.7%, 6.7% and 6.7%, respectively.
These shares, some of which are convertible at $45 and other at $24.60 a
share, will likely be worthless if Winstar is forced to restructure.
Carol S. Remond; 201-938-2074; Dow Jones Newswires
carol.remond@dowjones.com
(END) DOW JONES NEWS 04-03-01
08:15 AM |
