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MRV Communications' $100M Sub Nts Rtd 'CCC+' by S&P
Business Wire - September 11, 1998 17:32
NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 9/11/98-- Standard & Poor's today assigned its triple-'C'-plus rating to MRV Communications Inc.'s $100 million Rule 144a 5% convertible subordinated notes due 2003. The outlook is stable. The corporate credit rating on MRV is single-'B'.
MRV's ratings reflect the company's modest size, limited diversity, and substantial competitive and marketplace risks. These factors are somewhat offset by good current technology and ample near-term liquidity.
Chatsworth, Calif.-based MRV supplies fiber optic subsystems for broadband communications facilities, and high-capacity data networking products following its acquisitions of Fibronics and Xyplex Inc. Both the fiber optic and data communications markets are highly competitive and evolving rapidly, and products are expected to have only limited lifetimes. Sales from these markets totaled only $250 million for the last four quarters. Revenue variability, such as the decline anticipated for the quarter ended September 1998, reflects the company's substantial reliance on trial installations and development-stage products.
Sales to the carrier industry often entail lengthy trial periods, while commercial sales will entail a broadened distribution strategy. Both efforts could require large expenditures to implement extensive field support systems. MRV is expected to continue its strategy of adding to its product line and customer base through acquisitions, potentially of development-stage businesses. The company may be challenged to manage revenue growth, integrate future acquisitions, and expand its geographical base. The company is also currently rationalizing the operations of Xyplex since its January 1998 acquisition. Operating margins, currently in the upper teens percentage area, could decline due to the costs of expanding its infrastructure.
Cash balances totaled $140 million at June 30, 1998 compared to $108 million debt. Liquidity is likely to decline over time due to the potential for cash-based acquisitions and for working capital required to support rapid growth. Debt protection measures are good for the rating category, with debt approximately 3 times the trailing four quarters' earnings before interest, taxes, depreciation and amortization.
OUTLOOK: STABLE
Extensive competition and the potential for continued sales fluctuations will likely limit upgrade potential until market conditions stabilize. While acquisitions are expected to remain an important part of the company's growth strategy, MRV is expected to retain sufficient financial flexibility to meet its operating and debt service requirements for several years, Standard & Poor's said. -- CreditWire
CONTACT: Bruce Hyman, New York (1) 212-208-1350
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