S&P Rates Nextel Communications' Conv Sr Nts 'B-'
Updated 4:56 PM ET June 8, 1999
NEW YORK (BUSINESS WIRE) - Standard & Poor's
today assigned its single-'B'-minus rating to Nextel
Communications Inc.'s (Nextel) $500 million convertible senior
notes due 2007, issued under Rule 144A with registration
rights.
At the same time, Standard & Poor's affirmed its single-'B'
corporate credit and bank loan ratings, its single-'B'-minus
senior unsecured debt rating, and its triple-'C' preferred stock
rating for the company.
In addition, Standard & Poor's affirmed its single-'B'-minus
corporate credit and senior unsecured debt ratings for Nextel
International Inc.
The outlook for Nextel is positive, and the outlook for Nextel
International is stable.
Proceeds of the new note issue will be used to fund capital
expenditures, investments, working capital needs, and general
corporate purposes.
Total debt outstanding for Nextel's domestic operations is
about $6.7 billion, and for Nextel International is about $1.3
billion.
Nextel International is an unrestricted wholly owned subsidiary
of Nextel. As Nextel's credit quality strengthens, Standard &
Poor's will not fully consolidate Nextel's financials with those of
the weaker Nextel International. Although Nextel International
uses the same technology and supplier relationships as Nextel,
Nextel has limited ability, due to indenture restrictions, to
support Nextel International's capital requirements. Nextel
International's corporate credit rating, therefore, reflects the
differentiation between the company and Nextel. Nextel
International's unsecured debt rating is the same as its
corporate credit rating because there is a minimal amount of
secured debt in its capital structure.
Nextel's ratings reflect its strong growth in subscribers,
maintenance of high average revenue per unit per month
(ARPU), and Standard & Poor's expectation that earnings
before interest, taxes, depreciation, and amortization
(EBITDA) will continue to strengthen over the next two to
three years. These positive trends are somewhat offset by the
company's high debt leverage over the next three years.
Nextel is a nationwide digital wireless service provider offering
an integrated package of services including cellular telephony,
two-way dispatch, paging, and alphanumeric short-messaging.
Demand for the company's differentiated product offerings,
especially its "Direct Connect" for industry user groups, has
been demonstrated over the past year with the number of total
subscribers doubling to more than three million. Domestic
penetration rate is low at 2% compared with the penetration
for average cellular telephone providers, however, this reflects
Nextel's narrowly focused marketing strategy. The company's
marketing strategy has been to focus on the business customer.
Consequently, Nextel's ARPU is higher, at about $70,
compared with the $50 area for other wireless providers.
Nextel's ARPU is expected to continue to be strong over the
next three years, in the high $60 to $70 range. Churn, which is
in the 2% area, is below the average for digital wireless
subscribers.
To accommodate higher future growth in subscribers and
higher system usage, capital expenditures are expected to be
about $1.8 billion in 1999 for domestic operations. Proceeds
from this note issue, together with recent asset sales, the $600
million Microsoft investment, and the prospective stock option
exercised by Craig McCaw, are expected to be sufficient to
fund capital requirements through 2000. Standard & Poor's
expects the company to be free cash flow positive for domestic
operations in 2001.
Nextel has a moderate degree of financial flexibility given its
$3.5 billion bank facility, access to capital markets, and
expected strengthening in cash balances over the next three
years. Near-term capital requirements should also be mitigated
as a result of Nextel Partners Inc. (single-'B'-minus/Stable/--).
Nextel Partners, which is 35% owned by Nextel, is a newly
formed corporation established to build out the Nextel network
in small and midsize markets. Nextel's EBITDA coverage of
interest expense for domestic operations is expected to be in
the 1 times area in 2000.
OUTLOOK (Nextel Communications Inc.): POSITIVE
Continued strengthening of Nextel's cash flow measures could
lead to a rating upgrade over the two to three years.
OUTLOOK (Nextel International Inc.): STABLE
Due to the start-up nature of many of the company's
international operations, cash flow measures are expected to
remain weak near term. Additional financing after 2000 will be
required to support growth objectives, Standard & Poor's
said.---CreditWire
Copyright 1999, Standard & Poor's Ratings Services
Contact: Standard & Poor's, New York Rosemarie Kalinowski, New
York (1) 212-438-7841 |
