[S&P rates Advanced Radio Telecom notes CCC]
NEW YORK, May 18 - Standard & Poor's today assigned its triple-'C' rating to Advanced Radio Telecom Corp.'s $125 million (gross proceeds) senior subordinated discount notes due 2008, to be issued under Rule 144A with registration rights.
Proceeds will be used to fund the company's capital expenditures, working capital requirements, operating losses, and possible acquisitions.
The company's triple-'C'-plus senior unsecured rating and single-'B'-minus corporate credit rating are affirmed. The outlook is negative.
The ratings on Advanced Radio Telecom's debt incorporate the expectation for incurrence of significant secured debt. Ratings also reflect the substantial marketing challenges of the company's high frequency radio transmission network strategy and the significant debt incurred to finance this start-up venture.
Through stock-based acquisitions of 38GHz license authorizations during 1997, the company has extended its network buildout potential to about 210 markets, although its wireless broadband network has yet to generate meaningful levels of revenues, which totaled only $1.1 million for 1997.
As a result, the company is not expected to have sufficient earnings before interest, taxes, depreciation, and amortization to cover interest for at least several years.
Advanced Radio Telecom is in the process of deploying 38GHz technology via rooftop radio installations in 12 selected markets through mid-1999 to sell broadband and other data transmission services to private-line end users as an alternative to wireline connections.
This represents a change in strategy from its previous focus on the carrier sector, which proved to be a disappointing market for the company during 1997.
While the technology offers large bandwidth capacity and rapid deployment, it is characterized by limited range and requirements for line-of-sight transmission.
The existence of substantial competitive alternatives, including local copper networks, competitive access provider fiber systems, and lower-frequency microwave capacity, magnifies the marketing challenges facing the company.
OUTLOOK: NEGATIVE
Although Advanced Radio Telecom commenced commercial operations in November 1996, it remains a start-up venture. The company faces substantial challenges in redirecting its selling efforts to business customers over the next year in increasingly competitive markets.
While the $125 million subordinated issue, in conjunction with borrowings through a $200 million Lucent Technologies vendor financing arrangement reduces short-term liquidity concerns, uncertainty still exists as to Advanced Radio Telecom's long-term financing viability, Standard & Poor's said.
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