RE: Barron's article...
"""Cahill: We talked about the shift from dark fiber to wavelengths in long-haul
data traffic. One of the companies that is at risk there is 360networks. It is
trading at $1.40. But it still has over a $1 billion market cap. Here's the big
disconnect. The high-yield bonds are trading at nine to 10 cents on the dollar.
The high-yield market sometimes gets these things right before the equity
market does. The bonds are saying there is no recovery value for this. One
market is completely wrong.""""
I agree. The bond market is completely wrong here. 360's balance sheet was never leveraged as much, and is not leveraged to the extent as other companies that are in big trouble. 360's book value is US$2.60/share after considering 100% repayment of short and long term debt. The book value is reasonable as 360's actual costs were as much as only 1/3 their competitor's costs. By the way, the 2005 bond payment due June 15 will be paid as a normal course of business.
""""360 Networks acknowledged on its last
conference call they need $300 million just to make it through this fiscal year."""
Not quite true. Maffei said that their current business plan would require an additional $300 million to finish the build out and that if they couldn't get the money on acceptable terms, the business plan would be changed to meet current market conditions.
"""Raising that amount in this environment is going to be a challenge."""
Yes, but there was also a tacit implication that money was available, but not on terms that Maffei thought were attractive.
"""Furthermore, the $300 million figure is based on the assumption that revenues
are going to grow. Typically, companies that have bonds trading in the
single-digits to the dollar don't have revenues or EBITDA that grow. Typically
if a company goes bankrupt, there has been a recovery value of 30 cents on
the dollar. What people have come to realize with these telecom-service
companies that have gone bankrupt in the last couple of months is the
recovery value is almost negligible for the bond holders. The equity
completely gets wiped out"""
That is exactly what has recently happened in this sector, but in the specific case of 360, IMO, the baby has been thrown out with the bath water. A pile of money is going to be made by anyone who has carefully studied the t6 financial statements and notes to those statements, and then bought some of the bonds.
teevee |
