GV,
Why would you not consider cash balances- $4.5B - and marketable security holdings - $3.8B - as a MAJOR factor in assessing risk of bankruptcy? Consider that only the second convert is putable and that NONE of the $3.3B in long term debt is due before 2006.
Of course, if LU sales continue to decline ad infinitum, it will go bankrupt. However, given that its sales are actually rising on a sequential basis, with guidance for more of the same in 3Q, and that it is disproportiately positioned with the incumbent telcos that have strong balance sheets and projected 2002 budgets (VZ = 17% of sales, T=7%, SBC = 5%, BLS = 5%), it is pretty flip of you to imply that bankruptcy is impending.
AS to your comment that cash balances are up due to the convert - of course they are, but cash is still cash. The burn rate is down to ~$250M this quarter and will go lower still next. It will take a long time to burn through $4.5B in cash unless something else horrible happens to this industry.
Certainly the market is behaving as though telecom service providers will collectively struggle for a long time. I wholeheartedly disagree - the bankruptcy and liquidation of the non-economic alternative carriers is already shifting the fundamentals of the incumbent carriers. This is a cyclical business - like DRAM/semi-cap equipment, or oil/oil services. With the incumbent carriers posting operating cash flow improvements for 3 quarters, it is not a stretch to believe CAPEX will bottom out this quarter or next.
AS for Moody's, did you actually read the downgrade? The analyst yaks about expected deterioration in industry demand and doesn't really address the balance sheet whatsoever. I don't give much credence to Moody's perspectives on industry demand given they do ABSOLUTELY NO fundamental research on the topic of demand. Where I might have a modicum of respect for Moody's - balance sheet analysis - they had nothing to say. |
