NXTL
Tuesday June 8, 5:50 pm Eastern Time
S&P affirms Nextel Communications ratings
( PRESS RELEASE PROVIDED BY STANDARD & POOR'S )
NEW YORK, June 8 - Standard & Poor's today assigned its single-'B'-minus rating to Nextel Communications Inc.'s (Nextel) $500 million convertible senior notes due 2007, issued under Rule 144A with registration rights.
At the same time, Standard & Poor's affirmed its single-'B' corporate credit and bank loan ratings, its single-'B'-minus senior unsecured debt rating, and its triple-'C' preferred stock rating for the company.
In addition, Standard & Poor's affirmed its single-'B'-minus corporate credit and senior unsecured debt ratings for Nextel International Inc.
The outlook for Nextel is positive, and the outlook for Nextel International is stable.
Proceeds of the new note issue will be used to fund capital expenditures, investments, working capital needs, and general corporate purposes.
Total debt outstanding for Nextel's domestic operations is about $6.7 billion, and for Nextel International is about $1.3 billion.
Nextel International is an unrestricted wholly owned subsidiary of Nextel. As Nextel's credit quality strengthens, Standard & Poor's will not fully consolidate Nextel's financials with those of the weaker Nextel International.
Although Nextel International uses the same technology and supplier relationships as Nextel, Nextel has limited ability, due to indenture restrictions, to support Nextel International's capital requirements.
Nextel International's corporate credit rating, therefore, reflects the differentiation between the company and Nextel. Nextel International's unsecured debt rating is the same as its corporate credit rating because there is a minimal amount of secured debt in its capital structure.
Nextel's ratings reflect its strong growth in subscribers, maintenance of high average revenue per unit per month (ARPU), and Standard & Poor's expectation that earnings before interest, taxes, depreciation, and amortization (EBITDA) will continue to strengthen over the next two to three years.
These positive trends are somewhat offset by the company's high debt leverage over the next three years.
Nextel is a nationwide digital wireless service provider offering an integrated package of services including cellular telephony, two-way dispatch, paging, and alphanumeric short-messaging.
Demand for the company's differentiated product offerings, especially its ''Direct Connect'' for industry user groups, has been demonstrated over the past year with the number of total subscribers doubling to more than three million.
Domestic penetration rate is low at 2% compared with the penetration for average cellular telephone providers, however, this reflects Nextel's narrowly focused marketing strategy. The company's marketing strategy has been to focus on the business customer.
Consequently, Nextel's ARPU is higher, at about $70, compared with the $50 area for other wireless providers. Nextel's ARPU is expected to continue to be strong over the next three years, in the high $60 to $70 range.
Churn, which is in the 2% area, is below the average for digital wireless subscribers.
To accommodate higher future growth in subscribers and higher system usage, capital expenditures are expected to be about $1.8 billion in 1999 for domestic operations. Proceeds from this note issue, together with recent asset sales, the $600 million Microsoft investment, and the prospective stock option exercised by Craig McCaw, are expected to be sufficient to fund capital requirements through 2000.
Standard & Poor's expects the company to be free cash flow positive for domestic operations in 2001.
Nextel has a moderate degree of financial flexibility given its $3.5 billion bank facility, access to capital markets, and expected strengthening in cash balances over the next three years. Near-term capital requirements should also be mitigated as a result of Nextel Partners Inc. (single-'B'-minus/Stable/--).
Nextel Partners, which is 35% owned by Nextel, is a newly formed corporation established to build out the Nextel network in small and midsize markets.
Nextel's EBITDA coverage of interest expense for domestic operations is expected to be in the 1 times area in 2000.
OUTLOOK (Nextel Communications Inc.): POSITIVE
Continued strengthening of Nextel's cash flow measures could lead to a rating upgrade over the two to three years.
OUTLOOK (Nextel International Inc.): STABLE
Due to the start-up nature of many of the company's international operations, cash flow measures are expected to remain weak near term. Additional financing after 2000 will be required to support growth objectives, Standard & Poor's said. |
