Robert J. Reid knew how to talk...
08-Nov-00 Telecom Service Providers : Perhaps the world is not caving in on these emerging telecom companies after all. Winstar Communications (WCII 28 1/4 +5 7/8) announced that it has inked new financing agreements totaling $1.02 billion composed of equity, vendor financing and increasing its credit facility. It's promising that knowledgeable players like Microsoft and Compaq were willing to take an additional $270 million stake in the company. Cynics would say this additional investment was made only to avoid losing the original $900 million invested in the company earlier. We reviewed this issue yesterday with Level 3 but it's worth revisiting it as Winstar's agreement is an important catalyst for the group. Companies such as Winstar are pouring huge money into developing their fiber networks to serve the blistering demand for increased bandwidth. However, the fear is that there will be a glut of available fiber-optic bandwidth within three years as there are now 14 big-capacity national networks operating or under construction in the U.S. The companies doing the build-out are saying nonsense! Their argument is that increasing demand for bandwidth-hungry applications such as video conferencing will continue to rage. Also, who knows what applications will be available in 2-3 years? With technological innovation so strong, there will likely be uses for the bandwidth of which we can not currently conceive. In essence, build it and they will come. The fear with these companies is that they would have trouble accessing additional capital to build their networks. With the stock prices so low, secondary offerings would not bring in much cash without a severe dilution to current shareholders who would not be happy. However, with Winstar getting an additional $1 billion, this should help convince other lenders/investors that this strategy is a prudent one and provide financing to others. Others that should benefit from Winstar's news include Adelphia Business (ABIZ), XO Communications (XOXO), McLeodUSA (MCLD), Global Crossing (GX), Level 3(LVLT), and 360 Networks (TSIX). We believe in the model and the shares of these companies have been overly punished by the market. -- Robert J. Reid, Briefing.com |
