Reuters, Friday, February 27, 1998 at 06:34
(Following press release provided by the rating agency)
LONDON, Feb 27 - Standard & Poor's today assigned its
single-'B'-minus long-term corporate credit rating to the U.K.
telecoms operator Esprit Telecom Group PLC (Esprit).
The outlook is stable.
Furthermore, Standard & Poor's assigned its single-'B'-minus
long-term ratings to Esprit's US$230 million and DM125 million
11.50% senior unsecured notes due
2007.
The ratings reflect the challenges the company faces to
establish itself as one of the leading independent providers of
long-distance telecoms services in Europe, and its highly
leveraged capital structure. The European market for national
and international long-distance services is anticipated to show
fast volume growth over
the next few years as the various national markets gradually are
being liberalized, however, competition is intense and price
pressure hard.
Esprit will compete primarily with the dominant Public
Telecom Operators (PTOs), but also with other new entrants that
offer similar services and quality levels. To survive in this
competitive environment, it will be crucial for Esprit to
establish a low cost base and to grow traffic volumes rapidly.
The company today only owns a minor part of its telecoms
network and is dependent on leasing of capacity from and
interconnecting with the different national PTOs
to provide its services. The main challenges for Esprit going
forward therefore will be to expand its network in a successful,
timely, and cost-effective manner, and to establish favorable
interconnection terms in the countries in which it plans to
operate in reasonable time and at reasonable costs.
Although the regulatory trend is expected to be favorable
for new operators, the willingness and ability to promote
competition differs widely between the different national
regulators. The company will make considerable network
investments over the coming years to lower its cost base and
reduce its dependence on interconnection. Combined with expected
operating losses, this means that the company is anticipated to
have
negative cash flow over the next few years. An escrow account
secures interest payments during the initial three years of the
notes.
For the year ended Sept. 30, 1997, the operating margin
before depreciation fell to negative 17% from negative 13% in
1996, and the loss for the year was UK11 million (US$18
million). Esprit will be heavily leveraged over the next few
years with expected negative equity.
OUTLOOK: STABLE
Going forward, Esprit will have to establish a low cost base
by expanding its network and reaching favorable interconnection
terms, and at the same time rapidly grow its customer base and
traffic volumes. The rating of the notes assumes that no
substantial borrowing will be made at the subsidiary level,
Standard & Poor's said.
CONTACT:
Louis Landeman, Stockholm (46) 8-440-5917
Juan Jose Garcia Seijo, London (44) 171-826-3642
Copyright 1998, Reuters News Service
Companies or Securities discussed in this article:
Symbol
Name
NASDAQ:ESPRY |
