Subject: Moody's press release ...
Date: Tue, Nov 11, 1997 11:02 EST
From: Biffpincus
Message-id: <19971111160201.LAA25559@ladder02.news.aol.com>
Monday November 10, 3:23 pm Eastern Time
Moody's assigns Teligent Inc ratings
(Press release provided by Moody's Investors Service).
NEW YORK, Nov 10 - Moody's Investors Service has assigned a Caa1 rating to Teligent, Inc.'s proposed $250 million senior notes due 2007 (with 3-year interest escrow) and $150 million (gross proceeds) senior discount notes due 2007.
The ratings reflect the very early stage of the company's development, with the network build-out just commencing and only minimal revenue generation expected in 1998; the uncertain customer acceptance level of fixed-wireless telephony service; and the expectation of substantial network construction and heavy debt which will result in debt-to-EBITDA exceeding 5:1 for at least six years.
Teligent benefits from a very strong and well connected management team; a group of supportive strategic partners; very good access to capital, which including these notes, the concurrent equity issue and other transactions will total $1.5 billion and fund the business plan into 2001; and a strategic business plan which could result in substantial competitive advantages.
The rating also reflects significant additional debt which is permitted and likely to be raised, which will be senior in claim on cash flows and claim on assets.
Most notably, Teligent has received a commitment from Northern Telecom, Inc. to finance up to $780 million for network construction and certain amounts of working capital. This facility is secured by the assets of Teligent, guarantied by its subsidiaries and secured by a pledge of subsidiary assets.
Further, the prospectus provides for the ability to raise up to $175 million in a credit agreement, and similarly could be structured to be senior to the notes.
Since we expect additional capital will be necessary to fund the business plan in the periods after 2000, need for the credit facility provision is likely.
Teligent benefits from strong well connected sponsors who have committed an additional $160 million in equity, including The Associated Group , Inc. (41% ownership after IPO -new info), Telcom Ventures, L.L.C. (33%) and Nippon Telephone and Telegraph Corporation (11%).
Each of these entities has substantial communication experience. Alex Mandl, Chairman and CEO, and past President and COO of AT&T, has strong knowledge and substantial contacts within the industry.
Additional operating management is also very impressive, coming from very relevant backgrounds at MFS, MCI and other companies.
Teligent plans to provide communications service to small- and medium-sized businesses, in competition with the local telephone companies. It will offer voice, video, internet and high-speed data services.
Using its 24 GHz fixed wireless licenses in 74 metro areas, the company will build a
point-to-multipoint wireless network which communicates from its base stations to the customers' roof-top radios.
The physical construction of the network and the service connection to a customer should be considerably less expensive and quicker to achieve than for a wired network, providing Teligent with strong competitive advantages.
However, build-out is certainly not without risk, and to date the company has not established a track record. Northern Telecom has been contracted to provide the network construction, which will incorporate equipment of multiple manufacturers.
Contractually, Teligent accepts network from Nortel after the system has been proven to be operational.
Although there are several CLECs providing fixed wireless service, such as WinStar, ART and BizTel (a unit of Teleport), in general the provisioning of telephony and data services via is still new and customer acceptance is unclear.
Teligent states that quality and reliability are as good or better than wireline and will keep the distances between antennas short enough to avoid possible quality problems.
With the savings in deployment and operating expense in this wireless network, the company should be able to price below the incumbent telephone companies and still maintain good margins.
As the wireless technology becomes accepted, customers should be attracted less on price and more on features.
The quality management and sponsors, access to capital and good business plan give us a sense that the elements are available to build a good company, but at this stage there is very little business to evaluate.
The company plans to build out its network in 10 markets in 1998, 20 new markets in 1999 and 34 new markets in 2000-2001.
Given this schedule and an estimated three years to reach EBITDA break-even in an individual market, we expect minimal revenue in 1998 and company EBITDA break-even in five years.
Further, we would expect debt-to-EBITDA to exceed 5:1 for at least six years, assuming that future capital needs are met with some equity component.
Teligent has its headquarters in Vienna, Virginia.
Related News Categories: IPOs, US Market News
We shall see what we shall see,
biff
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