For whatever it's worth, below is Part I of a detailed research article by Prudential (8/12) on Nextel's new endorsement. (Tables are deleted as they are too messy to re-format).
_______
NEXL: RECEIVES ENDORSEMENT TO GO AFTER BANKRUPT NEXTWAVE LICENSES
(PART 1 OF 2)
Analyst: Christopher M. Larsen, CFA (212) 778-8420 Prior: Greg Simcik (212) 778-4791
Price Target $70
Nextel announced that it has received government endorsement to pursue and potentially purchase the PCS licenses of bankrupt licensee NextWave.
* NextWave has licenses covering 170 million people (POPs) in major cities including New York, Los Angeles, Boston, Washington DC, Chicago, San Francisco, Dallas, Atlanta, Las Vegas, Houston, and Minneapolis, to name a few.
* Terms of a potential deal were not disclosed, and no assurances can be made that Nextel will ultimately purchase the licenses, although we estimate a fair market value price to be roughly $15 per POP.
* We believe Nextel would be able to deploy services on this frequency faster than most any other potential bidder. The spectrum would be complementary to Nextel's existing position of at least 15 MHz of SMR in the top 50 markets.
* Separately, meetings with management yesterday indicate that operations are very much on track, and results for the month of July were ahead of schedule.
* We continue to rate Nextel a Strong Buy. We note that Nextel does not need the additional spectrum under its current business plan.
*****
Nextel Receives Endorsement To Pursue NextWave Licenses. Nextel indicated that it has reached an agreement with the U.S. Deptartment of Justice and the FCC and their endorsement to pursue and potentially purchase the C-, D-, E- & F- Block PCS licenses of bankrupt licensee NextWave. NextWave originally purchased the licenses at auctions in 1996 and 1997, but because it could not secure funding, has not launched any services on the frequencies. The licenses have recently been tied up in bankruptcy proceedings. Most of the licenses are reserved for so called "Designated Entities," which are essentially smaller businesses. Significant U.S. Population Coverage. NextWave has licenses covering 170 million people (POPs) (based on estimated 1999 figures) in major cities including New York, Los Angeles, Boston, Washington DC, Chicago, San Francisco, Dallas, Atlanta, Las Vegas, Houston, and Minneapolis, to name a few.
NextWave has a combination of 30 MHz licenses (C-Block) which cover approximately 120 million POPs, and 10 MHz (D-, E- & F- Block) licenses which cover an additional 50+ million POPs. Please call us for a full list of the NextWave licenses and a map of the footprint. The Designated Entity, and A History of the C-Block.
When holding the PCS auctions, the Federal Communications Commission (FCC) reserved two of the six licenses in each market for so-called designated entities (DEs). These DEs received 25% bidding credits in the auction and the purchase price of the licenses was financed by the government: winners had to put 10% down with the remainder due in a 10-year loan at U.S. Treasury rates.
Because of the easy financing and several other market forces/factors at the time, the average purchase price for the licenses was 3 times that of the A- & B- Block licenses auctioned just one year prior. Because investors believed that many winners overpaid for spectrum, the winners have had difficulty raising capital to build out networks. As a result, three of the largest winners from the C-Block auction (NextWave being the largest) have been in bankruptcy proceedings. Fraudulent Conveyance.
GWI (another large C-Block winner) and NextWave have recently won bankruptcy court decisions which say that the FCC committed a fraudulent conveyance when it sold the licenses to the carriers, and had the purchase price drastically reduced; the FCC does not agree with the decision. In the case of NextWave, it had its C-Block license debt reduced from $4.77 billion to $908 million (from over $45/POP to under $9/POP).
The FCC is trying to get this decision reversed, but in the mean time, the FCC, along with other federal government agencies, have been in discussions with Nextel. Nextel has all the government approvals.
What the release today indicates is that Nextel has received the necessary government approvals and endorsement to pursue these licenses - FCC (regarding a probable dismissal of complying with the DE status, etc.), Dept. of Justice (Nextel will be one of, if not the, largest holder of spectrum in the U.S.). If Nextel were to purchase the licenses it would be a win win for many involved - the FCC receives "fair market value" for the licenses, the licenses would be quickly utilized for commercial service (the FCC's stated ultimate goal), NextWave creditors would likely receive some compensation, and it would significantly enhance Nextel's spectrum position.
We believe the announcement was made today to allow the bankruptcy court to discuss the proposition with other NextWave creditors and its equity stakeholders. Price has not been determined. Terms of a potential deal were not disclosed, and no assurances can be made that Nextel will ultimately purchase the licenses. Based on our own research, we estimate a fair market value price to be roughly $15 per POP. The price would ostensibly be above the $1 billion level that is owed to the FCC under the current bankruptcy proceeding ($908 million for the C-Block in the contested, re-valued figure, plus $130 million for the D, E, and F-Block licenses), but certainly below the $4.77 billion originally paid at auction.
Based on recent (re-) auctions of major city licenses (Chicago, Dallas, etc.) and the per POP figure paid in the A- & B-Block auction, we believe a more reasonable figure would be $15/POP or $2.55 billion. What could de-rail this. There are no assurances that Nextel will ultimately purchase these licenses from NextWave and its creditors.
A laundry list of things could prevent a deal including: - the creditors (including the FCC) and Nextel are unable to agree on the "fair market value," other bidders outbidding Nextel, - industry players filing to prevent Nextel from being given DE status or amassing more spectrum, - acts of Congress (currently being contemplated but losing steam) that would give the FCC the authority to take back the licenses and re-auction them. In the U.S. market there is a spectrum cap that prevents a single carrier from owning more than 45 MHz of spectrum in a given market.
While Nextel owns as much as 22 MHz in some markets, SMR spectrum only "counts" as 10 MHz at most under the cap rules, there-by Nextel would fit under the 45 MHz cap in all markets.At this time, it appears that Nextel is the only bidder pursuing the licenses in this manner, and no one as of yet has opposed the plan, although that is highly likely to change.
_______
Ibexx
|
