pcstel, I know you have made a rigorous analysis of LWIN's business model. I assume the "EBITDA" fudging Cramer claims Qwest has been doing (like Global Crossing before it) would not have escaped your eye in the course of that review, had LWIN engaged in same. Still, it's an interesting discussion of how those pesky covenants (of which I think LWIN has several) can doom a company. Interesting read.
Pierre
Debt Fears Have Qwest Investors Quaking
By James J. Cramer
02/13/2002 14:22
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Fear drives Qwest Q right now -- the fear that it won't be able to get the equity it needs to meet its rigorous debt covenants, outlined in The Wall Street Journal today as 3.75 times EBITDA (earnings before interest, taxes and depreciation).
Lots of people think that EBITDA can't lie. But when you look at how EBITDA is tabulated, you can see that it's easy to fudge it. All you have to do is capitalize your expenditures and the expenses drop below the EBITDA line! That's what Global Crossing did, and that's what some think Qwest did.
Qwest needs to raise some cash to be sure it doesn't violate these covenants. But as the stock goes down, the price the company has to pay for more capital grows ever higher until it becomes prohibitive.
We are closing in on that prohibitive level. I think that Qwest's backers are so vociferous in their pursuit of Qwest's bashers because they know that as the common stock slides, the odds of a default do increase.
What happens now? I think Qwest has to explain itself, make a clean breast of things -- maybe fire Arthur Andersen, maybe make some changes at the top -- to get that money. Otherwise, here is another stock that fear itself will topple quite quickly in these tough markets.
Random musings: Watching this J.P. Morgan JPM trade, I have to admit where there is smoke, there is definitely a conflagration. Stay away. |
