TRADE IDEA-Buy Williams Communiations debt on weakness-Lehman
May 8, 2000 09:17 AM
NEW YORK, May 8 (Reuters) - Williams Communications Group Inc.'s WCG "depth of network" leaves it poised to become a large infrastructure supplier to emerging Internet services markets, and investors should consider buying the company's bonds, Lehman Brothers Inc. said in a recent report.
"We rate WCG bonds an Attractive Core Holding and would encourage investors to buy on weakness," Lehman said.
Williams's outstanding notes have retained their value better than many junk-rated bonds.
Its 10.7 percent notes due Oct. 2007 were recently bid at 102.25 with a yield to worst of 10.25 percent, or 357 basis points more than U.S. Treasuries. Its 10.875 percent notes due Oct. 2009 were recently bid at 101 with a yield to worst of 10.67 percent, or 399 basis points more than Treasuries.
On May 2, Williams reported first quarter results. The Tulsa, Okla.-based company said it lost $121.6 million, including a $25.4 million one time charge. Revenues totalled $533.4 million, about $30 million more than Lehman expected.
Williams's EBITDA (earnings before interest, taxes, depreciation and amortization) loss totalled $14.5 million, below the $51 million loss in the previous quarter. Excluding investment income, Williams's EBITDA loss was $66.2 million. Still, however measured, Williams's EBITDA loss beat Lehman's expectations.
In the first quarter, Williams signed more than $1.5 billion of long-term revenue commitments, or bookings, with new customers. It had a $16 million per month backlog, up from $12 million per month in the previous quarter.
On Feb. 29, Williams said it would acquire a 2,200 mile operational long distance fiber-optic network, including rights of way, equipment and facilities, from SBC Communications Inc. SBC , the No. 1 U.S. local telephone company.
Lehman said SBC does not yet have certification to enter the long-distance market, but that traffic in the service business is starting to ramp up because of SBC wireless customers' long distance usage and internal SBC traffic.
On the network development side, Williams had just over 27,000 of its 33,000 network miles in place.
The order backlog, Lehman said "is a concern. However, we believe (Williams's) local build efforts, working closely with local access providers, will prove successful in overcoming a short-term execution issue. Also, remember that this backlog represents healthy and growing demand for (Williams's) services. We look for expanding network services revenue and gross margins."
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