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Technology Stocks : PSIX up 26.5%, Takeover(?) -- Ignore unavailable to you. Want to Upgrade?

To: Randy Tidd who wrote (2188)	3/15/1998 9:13:00 PM
From: Kerry Lee	Respond to of 5650

Randy, you wrote: <<This item concerns me -- getting into a debt-leveraged situation is likely to cause near-term problems for the company's financial picture. They have already been burning the cash raised from their original IPO at a rapid rate and are already sporting a debt/equity ratio over 1.0. I hope that they don't give into the temptation of diluting their stock to raise cash (especially now that the stock has recently seen a sharp increase in value) since that would significantly decrease shareholder value.>> I'm not sure if I agree with your concerns, especially in this industry. PSIX is somewhere between a development stage company and a growth stock. High yield bonds ( known in the 80's as junk bonds ) are fairly standard methods of raising cash to fund build-out of infrastructure in cellular/telco/ISP arena. Nextel, Teligent and Concentric Networks ( another business to business ISP) have recently raised capital via high yield bonds, which typically have 10 year maturity. One only has to be concerned if there is sufficient cash on hand/EBITDA to pay quarterly interest payments. Principal is usually paid via balloon payment in 10 years. Who knows what will happen in 10 years? Probably the company gets acquired, making the balloon payment a moot point and the new owner assumes the debt or pays it off. Also, raising debt to build assets is a much better use of capital from a shareholder perspective as opposed to raising $500 million just to do an LBO. IF the Company does a follow-on common stock placement down the road to pay off the debt, after the short term hiccup caused by people worried about dilution, stocks usually trade up within weeks/months because the underwriters flog it to their institutional clients and then their retail saleforces put on the full court press to John Q Public in conjunction with Strong Buy ratings. I would point you to ARX, SEEK and AMCC as recent examples of stock price appreciation occurring soon after secondaries were announced.