Here's another bad news for CLEC. Moody's cuts Rhythms NetConnections. This is junk bond.
Moody's cuts Rhythms NetConnections
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(Press release provided by Moody's Investors Service)
Approximately $1.1 Billion of Debt Securities Affected.
NEW YORK, Dec 27 - Moody's Investors Service today
downgraded the senior unsecured debt ratings of Rhythms
NetConnections, Inc. ("Rhythms") to Caa1 from B3.
Moody's also lowered the senior implied and issuer ratings
to Caa1 from B3.
Moody's outlook at the new rating level is negative.
The ratings action follows the company's recent earnings
announcement and its guidance on future results that fall short
of Moody's expectations.
The downgrade also reflects Moody's concern that Rhythms
lacks sufficient liquidity to sustain its capital needs in the
intermediate term.
As of September 30, 2000, Rhythms recorded unrestricted
cash and short-term investments of $670 million which it
considers sufficient to fund its business plan through
approximately December 2001.
However, according to Moody's earlier calculations, the
company has a funding gap in excess of $1 billion before it
turns EBITDA positive.
Public investor sentiment for the DLEC sector has suffered
substantially during the course of this year without any
indication of a rebound.
Accordingly it may be difficult for the company to access
the public markets to fund its growth.
Rhythms is sponsored by a number of private equity
partners, including Hicks Muse Tate and Furst, Microsoft,
WorldCom and Cisco.
There can be no assurance that these partners will provide
additional private equity.
Should Rhythms experience difficulty in obtaining
additional funding, it would likely elect to conserve liquidity
by scaling back its growth, however this course would probably
have a negative impact on the company's debt service coverage
timetable.
In terms of line count, Rhythms is the smallest of the
three major DLEC's, moreover ISP's represent a relatively
smaller proportion (35% of total lines and 11% of revenues) of
its customer base than its peers.
The bulk of Rhythm's consumer business, about 16,000
installed lines at the end of the third quarter 2000, is
distributed through two financially challenged ISP's, Flashcom
Inc. and Telocity Inc.
Recently, Flashcom filed for bankruptcy protection. In the
case of Flashcom, Rhythms is attempting to migrate those lines
installed with Flashcom to financially stronger ISPs or onto
its own network.
Telocity has recently agreed to be acquired by Hughes
Electronics Corporation.
As of the end of the third quarter of 2000, Rhythms stated
that all customer accounts were current.
The debt securities affected are: $300 million 14% senior
notes due 2010, to Caa1 from B3 $325 million 12.75% senior
notes due 2009, to Caa1 from B3 $290 million discount notes due
2008, to Caa1 from B3. $169 million 6.75% Cum. Conv. Preferred
Stock, rated "ca"
Rhythms NetConnections is headquartered in Englewood,
Colorado.
REUTERS
Rtr 10:48 12-27-00 |
