Watch for XO Communications to eat this guy's lunch.
Adelphia Business to cut capital spending
NEW YORK, Sept 5 (Reuters) - Adelphia Business Solutions Inc. (ABS) (NasdaqNM:ABIZ - news), the loss-making telecommunications subsidiary of Adelphia Communications Corp. (NasdaqNM:ADLAC - news), said on Wednesday it would cut its capital spending and sell its local telephone business to its parent company.
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ABS said it would sell $125 million of its local phone business assets to its parent, cable television operator Adelphia Communications. It also said it would cut capital spending by $210 million this year and next in an effort to cut its free cash flow deficit.
The company plans to cut spending by $25 million this year. In 2002, it plans to cut spending to $235 million from $420 million and in 2003 and thereafter, it plans to cut spending to $200 million from $320 million.
The local phone service sale, the spending cuts and an expected completion of a $300 million to $500 million bank credit facility is expected to cut the company's unfunded free cash flow deficit from June 30, 2001, through the end of 2003 to a range of $80 million to $280 million, from its previous expected deficit of $1.1 billion.
The company said it expects that increased cash flow will allow it to secure additional funding next year, either through asset sales or bank debt to finance the remaining unfunded deficit."
``The capital expense reductions at ABIZ are in line with what we were looking for,'' said Kevin Kuzio, an analyst for Montpelier, Vermont-based KDP Investment Advisors Inc., a high-yield research firm. ``I wouldn't be surprised to see more asset sales to the parent.''
Like many emerging, ``junk'' rated telecoms, Adelphia Business has struggled with slower-than-anticipated growth and bigger-than-expected losses for it and others known as competitive local exchange carriers, or CLECs.
Many emerging telecoms have this year suffered credit rating downgrades, gone into default, or sought bankruptcy protection as the capital markets seized up.
Last week Moody's Investors Service, which said those markets are ``effectively closed'' to CLECs, cut Adelphia Business' secured and discount notes to ``Caa2,'' its fourth lowest grade, and kept them on review for more downgrades.
Adelphia Business, Moody's said, has a ``constrained liquidity position.''
Another rating agency, Standard & Poor's, on Tuesday warned it might cut Adelphia Business' ``BB-minus'' secured and ``B-plus'' unsecured debt ratings, which are roughly five and four notches higher than Moody's rating, and warned that a downgrade could be more than one notch.
Kuzio said bank lenders will ``want to see more success in ABIZ's telephone rollout'' before consenting to the $300 million to $500 million credit line, probably some time in 2002.
As a result of the moves, the company expects its earnings before interest, taxes, depreciation and amortization (EBITDA) to be $1 million in the second half of the year on revenues of $233 million, compared with its earlier guidance of $7 million in EBITDA, on $251 million in revenue.
In 2002, it expects EBITDA to total $75 million on revenue of $587 million, compared with its earlier expectation of $107 million in EBITDA on $725 million in revenues.
The company said capital spending cuts will come in activities that ``were not expected to generate meaningful EBITDA'' until after 2003."
ABS shares closed $1.85, up 34 cents, in Nasdaq trading, while Adelphia shares rose 67 cents to $32.96. |
