<font color=red>360networks stock hits record low after downgrade
By Ian Karleff
Thursday June 7, 3:19 pm Eastern Time
TORONTO, June 7 (Reuters) - Shares of 360networks (Toronto:TSX.TO - news) (NasdaqNM:TSIX - news) sank to a record low on Thursday after Moody's Investors Service cut the fiber-optic network builders' debt rating and questioned its ability to stay afloat without access to new debt or equity financing.
Moody's said the company's debt rating, which at B3 was already sitting six notches below investment grade, cannot go much lower than the downwardly revised Caa3.
``A rating of Caa3 is a very low rating, we don't have much below that,'' said John Page, a senior analyst at Moody's.
360networks scaled back capital capital spending plans in mid-May by $1 billion and suspended the building of 360asia and 360pacific projects, saying it would meet demand in Asia in the short term by reselling capacity rather than building.
When the company sold shares in an initial offering in March 2000 it was planning to build a fiber-optic network spanning the globe.
``Absent additional funding, the company's liquidity position may be insufficient to provide sustained support for its operations,'' wrote Page in a downgrade notice.
Page said debt investors are worried about the company's asset quality, and three significant cuts to cash revenue targets for the year. Targets now sit at $1.2 billion to $1.4 billion, down from original guidance of $3.1-$3.3 billion.
360networks has said it needs an additional $300 million this year to fund its operations, a sum which Page estimates will be hard to raise considering the negative investor sentiment surrounding the company and the industry.
A spokeswoman for 360networks told Reuters on Thursday that as of today there is ``no news'' in regards to closing the previously stated funding gap.
Shares of 360networks sank 20 Canadian cents to C$1.52 on the Toronto Stock Exchange on Thursday, and down 12 percent or 15 cents to 99 cents on Nasdaq.
360networks' shares have plunged from a September high of C$35.90 as investors question the firm's ability to meet its obligations on $2.5 billion of debt, as new funds dry up in the sector.
``To improve the rating we would want to see the funding gap dealt with and to see another quarter of execution. We would be concerned if we saw future revisions to revenue and adjusted EBITDA,'' added Page.
Analysts said 360networks competitors, including Level 3 (NasdaqNM:LVLT - news) Communications and Williams Communications (NYSE:WCG - news) Group, stand to benefit from 360networks' scaled-back building plans.
Kaufman Bros L.P. issued a research note earlier this week saying revenues will flow back in coming months to well-funded telecom carriers who are able to weather the ``capital storm''.
Moody's Page said demand for data-bandwith on fiber-optic networks is expected to grow exponentially, although customers will likely meet their needs using one supplier.
Those who come late to the game by not having a global network are likely to enter a downward spiral of not being able to fund network expansion through revenues.
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