Digital Island Sub Notes Rated CCC By
S&P
Dow Jones Newswires
NEW YORK -- Standard & Poor's assigned its single-B-minus corporate
credit and triple-C subordinated note ratings to Digital Island Thursday.
The outlook is stable.
San Francisco, California-based Digital Island provides content delivery,
network management, Web-hosting and other Internet-related services to
large and medium-size businesses, particularly in the financial services and
entertainment industries.
S&P said the ratings reflect an unproven business model and short
operating history in the competitive and rapidly evolving market for Internet
services. These concerns are only modestly tempered by robust demand
for content delivery and associated Internet services.
Management's strategic focus is to provide integrated Web-hosting,
content distribution, streaming media and other services for its customers,
S&P said. Providing such a broad array of Internet services is expected to
challenge management and Digital Island's resources.
In addition, S&P said it believes the four-year-old company's business
model, which has yet to achieve scale in its operations, is subject to rapid
technological change. Customer concentration is also a concern, with more
than 20% of sales from one customer. Also the competitive environment
may intensify as larger, well-capitalized telecommunications service
providers and services organization aggressively expand in the
Web-hosting market.
S&P added, however, that Digital Island is among the leaders in providing
content delivery services, and its business model seeks to develop
long-term contractual relationships with its customers by emphasizing high
service levels.
Despite rapid sales growth, revenues are still quite small, according to
S&P, at $40 million for the 12 months ended June 2000. Management
does not expect to achieve profitability until 2003 and operating losses are
likely to expand until mid 2001. Digital Island has a highly leveraged
financial profile, with more than $345 million in convertible debt.
S&P said the ratings are constrained by the company's limited scale of
operations and track record. Cash balances available to fund the
anticipated operating losses as well as favorable demand for Internet
services provide ratings support over the intermediate term as Digital
Island executes its still unproven business plan, the agency added.
Briefing Book for: ISLD |
