Winstar Shares, Bonds Tumble on Funding Concerns (Update2)
2001-03-21 17:24 (New York)
Winstar Shares, Bonds Tumble on Funding Concerns (Update2)
(Adds background in third paragraph.)
New York, March 21 (Bloomberg) -- Winstar Communications
Inc.'s shares and bonds fell on concern that the provider of
wireless telephone and data services to businesses will run out of
money, analysts said. Rivals' stocks and bonds also fell.
Winstar shares fell $1.25, or 33 percent, to $2.53 and
earlier tumbled by half to $1.88. The shares are down 96 percent
from a high of $66.50 last year. Volume, at 22 million shares, was
more than five times the three-month daily average. Senior notes
due in 2010 have declined 53 percent since the end of February and
are trading at levels of distressed debt.
Winstar's plunge comes amid a slide in the stocks and bonds
of other low-rated communications companies such as XO
Communications Inc. and McLeodUSA Inc. that have yet to see
profits as they build their phone networks. Lower stock and bond
prices may hinder the companies' ability to get the money needed
to finance business plans crafted when stock prices soared.
``You couldn't have more negative sentiment than you have
toward the sector,'' said Uri Landesman, chief investment officer
for AFA Management Partners LP, referring to the phone and data
transmission companies -- called competitive local exchange
carriers, or CLECs -- that compete with Verizon Communications
Inc. and others. AFA owns about 200,000 Winstar shares.
The New York-based company, founded in 1993, transmits data
using pizza-box-sized dishes mounted on buildings. It secured $1
billion in new financing in November, and said it has enough money
to last into the first quarter of 2002. Winstar's fourth-quarter
loss widened to $228.7 million from $162.3 million a year earlier.
Sales climbed 59 percent to $225.1 million.
``We don't comment on market activity,'' said Winstar
spokesman Kevin Cavanaugh.
Bonds Fall
The company's 12.75 percent senior notes due in 2010 were bid
at about 33 cents on the dollar, traders said. They've plunged
about 53 percent, or $370 per $1,000 face amount of bonds, since
Feb. 28, traders said. The notes fell another 5 points since
yesterday, they said.
The first interest payment on the notes, rated below
investment grade at ``B3'' by Moody's Investors Service and ``B-''
by Standard & Poor's, is scheduled to be made April 15.
Winstar and its rivals are also being pinched by slowing U.S.
economic growth.
The slowdown ``makes business-plan achievement all the harder
for these companies and that's a worry for bond and
stockholders,'' said Jerry Paul, who helps manage about $1.5
billion of fixed-income assets, including telecommunications
company bonds, at Invesco Funds in Denver.
Plunging shares, a slowing economy and disappointing earnings
by companies such as Nextel Communications Inc. have dampened
investor interest for phone company debt, said Harry Resis, who
helps manage about $6 billion of high-yield debt at Scudder Kemper
Investments in Chicago.
Telecommunications Disappointments
Telecommunications companies, among the biggest issuers of
junk-rated debt, have handed investors losses of at least 10
percent this month -- and more than a 2-percent-loss this week,
including price declines and interest, according to a Merrill
Lynch & Co. index.
The companies' ability to borrow new funds in the bond market
is ``limited, if not closed altogether,'' Resis said. ``Even the
well-regarded companies are getting hit,'' he said, referring to
Global Crossing Ltd., Level 3 Communications Inc. and McLeodUSA.
Nextel Partners Inc., another money-losing phone company,
scrapped plans for a $600 million loan after investors demanded
higher yields than it was willing to pay. Williams Communications
Group Inc. scaled back a new credit facility and raised the yield
to lure investors, bankers familiar with the loan said.
Rivals Tumble
Reston, Virginia-based XO fell $1.50, or 19 percent, to
$6.50. Cedar Rapids, Iowa-based McLeodUSA fell $1.88, or 17
percent, to $9.06.
``It is very likely that we will have some CLEC bankruptcies
this year,'' said Christopher Larsen, analyst at Prudential
Securities Inc. with a ``strong buy'' on Winstar. The company will
not generate enough cash on its own until 2004, Larsen predicts.
The company needs $1.9 billion more before then, of which it has
conditionally lined up $1.4 billion, he said. |
